• US tense relationship with China benefits Mexico
• Investors familiar with political options
• Stabilization of interest rates could encourage more deals

The nearshoring effect that started in 2018 during former President Donald Trump’s administration as the US escalated tariffs on goods imported from China will continue regardless of who wins the US federal election and of who wins the Mexico presidential elections in 2024, a pool of M&A advisors told this news service.

According to Ricardo Perez, partner at M&A advisory firm RIoN, the electoral process in the US may have more influence over Mexico’s M&A market than Mexico’s own elections in June, especially if Trump emerges as a potential winning candidate, as in 2016. “His comments about canceling the free trade treaty and punishing US companies that moved plants to Mexico and other countries generated much uncertainty about the performance of Mexican companies that are natural exporters to the US,” Perez said.

The “Trump factor” is difficult to predict and can certainly generate uncertainty and volatility in the face of elections, said Sergio Garcia del Bosque, managing director at investment bank Seale & Associates. However, regardless of who wins, it is likely that the US will continue to have an interest in strengthening economic ties with Mexico, which in turn could benefit M&A, the investment banker added. “This continuity in US foreign policy for Mexico could provide a stable basis for investment, offsetting any temporal volatility caused by the electoral cycle,” Garcia del Bosque said.

Bruno Ferrari, managing partner at Mexico City-based investment bank Cross Finanz, said that, in case Trump returns to power, he will likely resume an aggressive policy that will deepen the tense relationship with China. “This will favor nearshoring factors, deepening the US-Mexico relationship,” whether Trump likes it or not, Ferrari said. “Regardless of which party wins, tensions with China would continue and businesses with its southern neighbor will increase,” he added.

Garcia agreed by noting that even though the US elections could generate certain temporary volatility, both the Republican and Democratic parties have solid incentives to maintain and encourage nearshoring with Mexico and reduce the country’s dependence on Asia and China.

After six years of President Andres Manuel Lopez Obrador (AMLO), is not clear if his so-called “Fourth Transformation” policy will be continued by AMLO’s candidate Claudia Sheinbaum or if the opposition will regain power with its candidate Xochitl Galvez. However, it is unlikely that markets will be volatile “as foreign investors won’t give as much importance to the next presidential mandate, as their investments are long-term,” RIoN’s Perez said.

Familiar faces 

Unlike previous electoral cycles, when there was uncertainty regarding an untested political regime in Mexico, the 2024 elections are characterized by having political options familiar to markets, said Seale & Associates’ Garcia. This could result in lower volatility and greater predictability for investors, the investment banker said. “This familiarity with political options will significantly reduce uncertainty compared to the previous federal election, possibly maintaining a more stable environment for M&A investments in Mexico,” he added.

Historically, electoral years have seen a slowdown in Mexico’s M&A market, so it is expected to be an extra factor of uncertainty, said Alejandro Ibarra, Deloitte partner in Mexico City. However, the key factor for the recovery of the country’s M&A market continues to be nearshoring and the potential stabilization of interest rates in 2024, he added. Ibarra said he expects no important changes in the M&A market in Mexico in 2024 compared to 2023.

The key factor in Mexico continues to be nearshoring, Ibarra said. However, high interest rates have been an important barrier both in 2022 and 2023 and it is expected that these will begin to normalize in 2Q24, returning dynamism to the market, he added. In 2024, M&A will continue to be influenced by the exchange rate and the uncertainty regarding elections might slow down the M&A market, said Ariel Fischman, director at financial advisory firm 414 Capital, which has offices in Miami and Mexico City.

Among the 2023 M&A deals possibly motivated by the nearshoring trend in Mexico is the July acquisition by Chicago-based private equity real estate investment firm Walton Street Capital of A-Industrial Advisors, the Silao, Guanajuato-based real estate firm. Credit Suisse advised the target, and the terms of the deal were undisclosed.

In August, Irving, Texas-based machinery manufacturer Caterpillar [NYSE:CAT] acquired Mexico City-based importer and wholesaler of products and accessories for the welding industry Okila. The terms of the deal were undisclosed.

Real estate deals on the rise 

According to research on industrial real estate deals published by Mexico Industry Invest, an information platform to foment investment in the Latin American country, in 2023 as of 30 September, 42 new companies arrived in Mexico under the concept of nearshoring.

Among the largest industrial real estate deals in Mexico in 2023 was an acquisition by Charlotte, North Carolina-based industrial provider Honeywell [NASDAQ:HON] of 670,000 square feet in the state of Chihuahua on 30 September, according to the research. Another large acquisition was made by Bloomington, Minnesota-based industrial machinery manufacturer Donaldson, of 678,000 square feet in the state of Guanajuato. Other large incoming companies cited in the research were Rueil-Malmaison France-based Schneider Electric [EPA:SU], which bought 343,600 square feet in Puebla; Santee, California-based Scantibodies Laboratory’s acquisition of a 1.5m square feet multipurpose campus in Tijuana; and Copenhagen, Denmark-based Maersk’s [CPH:MAERSK-B] acquisition of a 296,000 square feet area in the same state.

According to the research, 28 of the companies investing in industrial real estate came from China, eight from the US, and two from Taiwan, among other countries.

by Adriana Curiel, with additional reporting by Priscilla Murphy