SAO PAULO, April 1 (Reuters) - With regional heavyweight Brazil less of a force in global capital markets this year, Mexican companies are filling the void by luring more investment in the form of mergers and acquisitions, bond and equity offerings.
Several deals have taken place since Mexico’s $2 billion sovereign bond sale in January as investors look to benefit from the impact of U.S. economic growth on its southern neighbor.
First-quarter deal-making activity was more robust in Mexico than anywhere else in Latin America for only the second time in a decade. Thomson Reuters data shows the value of announced mergers and acquisitions in Mexico reached $8.64 billion, above Brazil’s $8.51 billion.
Illustrating how the tables have turned, $13.93 billion worth of M&A deals were announced in Brazil during the first three months of 2014, against just $3.99 billion for Mexico.
Bankers expect the trend to extend to the underwriting of stock sales, such as initial public offerings. Brazil is experiencing a turbulent year as an economic slump and a corruption probe at state-controlled Petróleo Brasileiro SA sap business confidence, investment and capital markets activity.
“Mexico continues to be the region’s darling,” Ignacio Benito, JPMorgan Chase & Co’s managing director for Latin America M&A and equity capital markets, said in New York last week. “You may have whatever issue hampering sentiment but with the U.S. economy doing well, it’s hard to see Mexico not getting a lift from it.”
Although Mexico’s economy has consistently underperformed over the last decade, it is expected to grow more than 3 percent this year and long-awaited reforms in the telecommunications and energy industries spurred recent takeovers such as AT&T Inc’s purchase of Grupo Iusacell SAB last year.
The disposal of telephone, cement and industrial assets by market leaders are spurring optimism that bidders could seek merger financing, bankers said.
Cementos Mexicanos SA has identified $100 million of assets to sell, while America Movil SAB hopes to complete the spin-off of its cellphone towers unit by June. Supermarket group Organización Soriana SAB plans to raise $600 million in capital later this year.
In contrast, deals in Brazil, Colombia and Chile are taking longer to finalize as slumping commodity prices and weaker currencies make it harder to calculate future returns, said Facundo Vázquez, head of Latin America equity capital markets at Itaú BBA.
While Mexico is far from immune, it looks more resilient than its Latin American peers at the moment.
“Generally speaking, in Mexico, if you want to pursue a deal, you can get it done,” Mark Rosen, Bank of America Merrill Lynch’s head of Latin America investment banking, said in an interview in New York.
Brazil’s share of Latin America’s total fee pool fell to about 35 percent last year, down from as much as 68 percent in 2006, and bankers say it could slip further this year as the economy faces its steepest contraction in more than two decades.
Taking advantage of the market’s bullish view of Mexico, Itaú BBA and Brazilian arch-rival Grupo BTG Pactual SA are ramping up broker-dealer units and hiring staff there. BofA Merrill Lynch hired a new head for Mexico late last year, and Bank of Nova Scotia is hiring more staff for its country unit.
Potential M&A buyers in Mexico including multinational companies, private equity firms and wealthy families looking to take advantage of an expected boost as the U.S. economy grows, BofA’s Rosen said. Mexico exports the equivalent of one-third of its gross domestic product to the United States.
“Mexico is a market that is doing relatively well and should move alongside the recovery in the U.S.,” Itaú BBA’s Vázquez said. “A significant deal flow will materialize by year-end, when things turn more clear for the country and markets in general.”
Despite grappling with political and economic uncertainty, Brazil seems to be moving in the right direction as leftist President Dilma Rousseff embraces a more business-friendly policy platform to attract investment, the bankers said.
JPMorgan’s Benito, who remains optimistic about the long-term outlook for Brazil, said strategic players are eyeing more targets in the country after the real, Brazil’s currency, lost a third of its value against the U.S. dollar in the past year.
“Long-term clients who look beyond the next two to three years will continue to invest in Latin America,” BofA’s Rosen said. “The recent correction in some markets is leaving some assets attractive and the long-term fundamentals of the region are quite solid.” (Additional reporting by Christine Murray in Mexico City; Editing by Todd Benson and Kieran Murray)