emmersion
Conference Insight: LatAm M&A bump pending as cross-border deal volume declines, panelists say
Updated: Jul 13, 2023
To see the entire video of this discussion, and other highlights from the Mergermarket M&A Forum Chicago, click here.
Inbound cross-border M&A into North America continued its multi-year slide despite expectations of a nearshoring trend, but a panel of dealmaking experts urged patience as they anticipate acquisition activity to pick up in Mexico and other areas of Latin America.
Cross-border deal volume steadily declined since 2021, according to Mergermarket data presented at the panel during the Mergermarket M&A Forum Chicago on 11 July.
William Rowe, a partner at Baker McKenzie, said the drop in inbound cross-border M&A in North America has been driven by a combination of interest rate hikes by the Federal Reserve and increasing geopolitical tensions.
However, Stephen Marks, a managing director at Emmersion Capital, a private equity !rm focused on investing in lower middle market companies in Latin America, said data has not yet caught up on business activity currently underway. “Let’s see what the next two years show,” he said.
Valuations are rising for targets in northern Mexico and other industrial corridors as US investors enter the region, Marks said. “We’re seeing family offices and middle market private equity in the US acquiring assets [in northern Mexico].”
Citing figures from Morgan Stanley, Marks said exports from Mexico to the US could reach USD 650m in the next five years as around USD 70bn in manufacturing activity is transferred from Asia to Latin America. “This is a shift that takes time. You have to be patient with it, but eventually, the acquisition data is going to catch up to that,” he said.
Thomas Chadwick, a principal at Pritzker Private Capital, echoed these statements, calling nearshoring a “key theme” for industrial businesses when it comes to identifying cross-border opportunities.
“If you’re a manufacturer with operations in Asia, you’re now adding presence in Mexico and other locations,” he said.
Labor trends drive strategic buys
Labor shortages in the US could also lead to an increase in cross-border M&A, said Richard Buchband, senior vice president and chief legal officer for Manpower Group [NYSE:MAN].
The executive has seen its US-based clients look for targets in areas like IT, cybersecurity, engineering and !nancial analysis as they shift from India and China to Latin America, which is driving up multiples for firms offering those services. “Assets are trading 2-3 points higher than they would have 5-6 years ago,” he said. As a result, more of Manpower’s clients are becoming more open to opportunities abroad, including green!elding and joint ventures, which will eventually lead to acquisitions, he said.
While nearshoring might impact pricing, he said he’s agnostic on global trends, in both the short and the long term, he said. “What does matter is age-old concepts in strategic planning and portfolio diversi!cation, opportunities that align with your long-term expansion objectives,” he said.
Middle market increasingly prominent
For now, large companies are leading the transition from Asia to Latin America, said Baker McKenzie’s Rowe.
But Emmersion’s Marks said he’s observed lower middle market companies be more aggressive in pursuing acquisitions in the Latin American market because they have the flexibility to do so, he said.
“You’re seeing shareholder pushback in the middle market and you’re seeing private equity investors who are creating a roadblock. We see opportunities with more entrepreneurial-minded lower middle market companies finding a way to make it work,” he said.
by Benjamin Glick in Chicago
