"The M&A market is hitting all-time highs in Latin America." October 25, 2012
"The M&A market is hitting all-time highs in Latin America."
Mario Pardo, Global Director of M&A at BBVA Corporate & Investment Banking, describes the situation of the mergers and acquisitions sector, and the differences between the Iberian and Latin American markets.
Q: What does the M&A market currently look like?
The M&A market mirrors the macroeconomic situation in the countries in which the market's transactions take place. Consequently, the M&A market looks very different in the Iberian market than it does in Latin America. Whereas the M&A market is seeing all-time highs in the majority of Latin America, valuations and business volumes have fallen sharply in the Iberian peninsula.
However, we can list three segments in Iberia that do show growth:
One relates to sector consolidation. The economic downturn is forcing companies to seek synergies and to enhance efficiency. Intra-sector consolidation is the most natural and easiest way to lock in such cost savings. This is occurring in the audiovisual, food and distribution sectors, among others.
Secondly, corporate groups from emerging countries have been acquiring companies in Spain and Portugal. In the past 12 months, we have seen record numbers of acquisitions of Spanish and Portuguese companies by investors from Latin America, Asia, and the Middle East. This trend has been noted in highly-resilient sectors such as energy and infrastructure, as well as in industrial companies based in Spain or Portugal and operating worldwide.
Lastly, some venture capital segments are also growing. We have seen a great deal of activity in the segment specialized in acquisitions of medium-sized companies (i.e., with a transaction value of between €20 million and €200 million), given that buyers spot an opportunity to invest in good companies at attractive prices. We are also seeing funds specialized in hybrid investments, somewhere between debt and capital. These funds invest in debt instruments, but with the possibility of an equity upside, i.e. sharing in any operating and financial improvements in companies. This gives company owners access to an alternative financing source without having to relinquish control over their companies.
In Latin America, and particularly in the Andean block (Colombia, Peru and Chile) and Mexico, we are seeing extremely high levels of activity across virtually all sectors. The most noteworthy aspect is that, in contrast to the past, instead of the majority of acquisitions being made by European and American groups, buyers are now primarily local groups or groups from the same region, targeting European companies.
Q: Going forward, what challenges do you see for this business? Will Europe, and particularly Spain, be able to attract foreign investments despite the current economic situation?
Spain is, and will continue to be, one of the largest European and world economies. Consequently, there is no doubt that investor interest in Spain will once again be formidable. The major challenge we have been dealing with in the past months was the perception that the macroeconomic situation had worsened. However, we are certain that M&A activity will rally in 2013. Many European groups are willing to invest in Spain and are evaluating the opportunities open to them. However, they will only do so when they consider that the worst is over for the country and that the European crisis has been brought back under control.
Q: What will BBVA's role be in all this? What are BBVA's competitive advantages (bearing in mind its relatively short track record in M&As)?
BBVA is a leading bank in Spain, and in the M&A sector as well. Our clients value three things in BBVA above all else:
One, BBVA's strong presence in the companies and corporations segment. With over 80,000 corporate clients in Spain, our knowledge of the Spanish business world is beyond any doubt whatsoever.
Two, our clients value the fact that we offer comprehensive and integral financial solutions. We handle not only the M&A itself, but also financing and other financial services entailed in a merger or acquisition process.
Third, our experience in mergers and acquisitions. We have over 30 professionals working exclusively in the M&A sector in Iberia, and we handle more transactions than any other competitor. We place this extremely valuable experience at the service of our clients, in order to structure and advise them in their M&A transactions.
In December 2011, the prestigious Financial Times and mergermaket named us the best advisor in Spain and Portugal for that year. We were extremely pleased to receive this award. Yet even more importantly, we value the over 50 transactions we have closed for BBVA clients since the onset of the financial crisis in late 2008, more than any other bank in Spain.
The situation is very similar in Latin America, where BBVA is the leading bank. There, we not only have unparalleled knowledge of the business fabric but also the same possibilities of offering financing for M&A transactions. In addition, we are the only bank with specialized M&A teams in the main Latin American markets, such as Mexico City, Bogota, Lima, Santiago and Buenos Aires.
Drawing from our presence in both Spain and Latin America, we have advised in more transactions with IBEX-35 companies than any other bank. Among numerous other companies, we have helped Ferrovial, FCC, Acciona, OHL, Endesa, Iberdrola, Repsol, Enagás, Grifols and Mapfre in their main M&A transactions over the past three years.