Mexico saw just nine mergers and acquisitions in April, according to M&A research firm Transactional Track Record (TTR), as deals slowed to a crawl with the COVID-19 lockdown. 

But with companies focused on remaining solvent and banks stepping in to keep their commercial clients alive through the ordeal, consultations on potential deals have been vibrant and firms that would never have considered bringing assets to market could be looking to sell as the post-crisis aftermath becomes clearer.

“There will be businesspersons, not this year, but in 2021 or 2022, who will look to sell their companies. They’ve recognized they aren’t invincible,” said Gabriel Millán, partner at M&A consultancy Serficor IMAP.

Serficor, said Millán, has been receiving calls from companies interested in M&As for the first time. “There’s a certain panic,” he said. “They’re considering what they’ve never considered: selling a stake in their company, or even selling a majority.”

Manuel Galicia, founding partner of M&A specialty law firm Galicia Abogados, told TTR that even as 1Q20 drew to a close at the start of the lockdown, the firm’s workload remained heavy. 

“There’ve been a great number of consultations,” he said. “Not all of them will turn into deals, but it’s important to maintain that proximity with clients.” 

Despite what looks like very rough waters in the next couple months, Galicia said, “This is a bubble. There will be scarce activity in 2Q20, and then little by little, things will reactivate in the second half.”

Interesting times

That said, Mexican M&A consultancy RIÓN M&A reported that 80% of deals in their pipeline have been suspended, with buyers especially cautious in tying up the liquidity they have on hand.

“We’re facing interesting times; it’ll be interesting to see how industries are transformed,” said Alexander von Griesheim, partner at RIÓN M&A. 

Von Griesheim told TTR that Mexico has become somewhat accustomed to disasters and crises (e.g. H1N1, 2017’s earthquakes, the Tequila Crisis) and what these have taught people is to be less reliant on the state.

This attitude was apparent with the relatively minor economic assistance that President Andrés Manuel López Obrador (AMLO) was willing to provide with the current crisis, which largely consisted of 2mn low-interest loans to SMEs for 25,000 pesos (US$1,000) each. 

“What can they do with that, buy a round of tacos for everyone?” said von Griesheim. Beyond this, AMLO has insisted that absolutely no support will go to large companies, even those in Mexico’s disastrously impacted tourism and travel sectors.

Von Griesheim said banks have smartly taken up the task by granting a special four-to-six-month grace period for clients and adopted an attitude where their clients’ solvency will be more important than profits in 2020, saying, “They realized that 10 years ago in the Lehman crisis they cut off credit and sent companies to die.” 

“Being so close to our clients, we know they’re facing a very difficult situation,” said Millán. “They need working capital and they need to establish a control tower so that if this lasts one month, two months, or three months, they can endure.” He added that companies are postponing investments in capital goods and machinery and capex is being reined in to meet liquidity needs.

The current crisis takes uncertainty to a new level beyond the whims and idiosyncrasies of Mexico’s populist president, said Millán, which requires a more extreme, survivalist approach. “If companies and business leaders aren’t thinking outside the box about how to grow their businesses organically and inorganically now, it’s because they didn’t have the discipline to do so before.

“The climb to recovery is going to be especially steep for them,” said Millán, adding, “This is a moment for action. There will be opportunities to grow.” 

Latest metrics 

“Mexico went into the crisis a little sick already,” Millán said, as M&A activity was showing little sign of any rebound from last year’s weak performance with investor confidence shaken by AMLO’s anti-business policies, particularly in the energy sector.

Looking at the first four months of 2020, TTR reported the number of transactions – including M&As, private equity, venture capital and asset acquisitions, were down 22% year-on-year to 81. 

Forty of these disclosed deal values amounting to US$2.63bn, down 58% from January-April 2019. 

Dealmaking in Mexico’s financial services industry, which leads M&As by volume, picked up 8% to the close of April, according to TTR data. Tech deal volume fell 33%, while real estate transactions dropped 20% but the number of deals in the transport sector rose 17%. 

Private equity deals fell 63%, with inbound acquisitions led by US-based buyers down nearly 18%, reported TTR.

Source: Business News Americas / BN Americas - Chile