GEO-POLITICAL CLIMATE

REGIONAL POLITICAL UNPREDICTABILITY:
Political uncertainty is nothing new to Latin America with the region trying to look beyond the corruption issues it has faced historically. However, with upcoming elections in some of the largest Latin American countries, including Brazil, Mexico, and Colombia, there is increased uncertainty affecting the region. If candidates viewed by the markets as “unfavorable” win, increased volatility is expected to impact M&A negatively.

INTERNATIONAL ECONOMIC POLICIES:
President Donald Trump’s economic and tax policies are triggering a significant impact on Latin America. The ongoing renegotiation of NAFTA and newly enacted steel and aluminum tariffs levied by the government are further adding fuel to existing market turbulence in Brazil and Mexico.

CHANGING GLOBAL M&A LANDSCAPE

While Latin America struggles to re-define its own structural foundations, the US and certain European countries are riding booming M&A markets, which are demanding robust capital deployment from investors, which would otherwise, at least in part, be allocated to Latin America. Our clients are being innovative in creating value as there are also increasing opportunities in an uncertain market.

Should the above-mentioned elections have a positive outcome, the broader notion of political instability should temper down. There are no telling signs as of yet, but Europeans may be more prevalent in our region as compared to the Americans – especially considering the nationalistic tone of President Trump’s current policies.

Despite a seemingly initial negative impact of Trump’s policies, the business community is reacting by seeking alternate partners. As the US seeks to impose import tariffs to China, the Chinese could be importing products such as soy bean (one of Brazil’s biggest exports) from Latin America rather than the US. The strengthening of the Pacific Alliance is leading to further interconnectivity within the region as we see evidence of these trends from our clients.

These uncertainties are driving entrepreneurialism and innovation in industry leaders, investment bankers, financial sponsors and advisors. We expect consolidation to occur within a variety of sectors, more specifically, in sub-sectors where regional activity still prevails: food, beverages, health, K-12 education, etc. This may result in increased M&A activity in these sectors.

Among the Latin American economies, Brazil remains the leader in deal activity in the region despite its current political turbulence and period of low economic growth.

• Domestic M&A still thrives in sectors impervious to the market changes: health, technology, education, financial services, and select consumer good sub-sectors.

• Brazilian infrastructure will see increased deal activity considering the solid privatization plan and investment commitment from the current government. Pending the election results happening later this year and the new government’s possible agenda, this will play a key role in dealmaking in the coming months,

For the oil & gas sector, renewable energy and broader infrastructure through public to private partnerships and other investment venues are expected to have a number of knock-on effects in other sectors – from logistics to transportation and utilities. As it bounces back from its slump and commodity prices stabilize, we also expect this sector to have meaningful deal activity which will affect the entire supply chain.