Weak Economic Climate Stokes M&A Activity in Latin America

High interest rates, volatile political climates, and economic turmoil has kicked off a wave of mergers and acquisitions in Latin America, with many businesses choosing the option of selling assets to wriggle out of the debt trap. According to Bloomberg, some multinationals are busy managing their debt restructuring initiatives.
“Assets that we never thought would be coming to the market are now for sale as some companies and sectors are distressed and multinationals are announcing huge divestment plans,” Marcus Silberman, co-head of Latin American mergers and acquisitions for Bank of America Merrill Lynch, told Bloomberg.
Much of these activities are widely visible in Brazil, Latin America’s biggest economy and a nation currently being battered by corruption scandals, unemployment, and inflation. The country’s top telecom firm, Oi SA, has reportedly hired PJT Partners to restructure US$16.7 billion of debt. Oi turned to debt restructuring after its effort to be merged with Telecom Italia fell through.
According to Bloomberg, Colombian driller Pacific Exploration & Production Corp. defaulted on bond repayments, so did Mexican construction company Empresas ICA SAB in December last year.
Total merger and acquisition volume in Latin America and the Caribbean jumped 14% so far in 2016, compared with the same period a year ago, to $26 billion, according to data compiled by Bloomberg.
Among the most important transactions carried out in Mexico during 2015 was the acquisition of the Nextel Mexican subsidiary for US$1.9 billion and the purchase of Comercial Mexicana by Soriana for an amount of US$211 million.
“Recession, political turmoil, and falling commodity and oil prices added to rising interest rates, making it tough for companies to generate free cash flow,” wrote Bloomberg. “Hence, asset sales are the order of the day to meet debt payments.”
A large majority of buyers are sovereign wealth funds and private equity funds, Chinese investors have not come onto the scene yet. But analysts say Chinese firms will arrive soon.