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Powering on: Renewable energy and nearshoring drive M&A volume in 2Q23

Latin America deal value rebounded in the second quarter despite headwinds in the form of overall inflationary pressure, ongoing economic uncertainty and supply-chain challenges brought about by the coronavirus (COVID‑19) pandemic. Deal value in the region soared to USD 27.2bn in 2Q23, rocketing 295% from the prior quarter.

By contrast, the number of deals tumbled, falling to 284 transactions in 2Q23, a slide of 16% compared with the first three months of the year.

The utility and energy industry tops the table as the sector with the highest deal value in both 1Q23 and 2Q23, totaling USD 12.1bn in the first semester. Nearly half of this figure came from the sale in April of 13 Mexican gas and wind power plants by Spain-based energy group Iberdrola [BME:IBE] to state-owned Mexico Infrastructure Partners (MIP).

When the deal is concluded, the power plants are to be operated by government-owned firm CFE, which expects to see an increase in its share of electricity generation in the Mexican market to 55.5% from its current 39.6%, as reported.

Green dream

Latin America’s transition towards green energies is likely to maintain the focus on the utility and energy industry as a hotspot for deal activity, says Marco Andre Almeida, Head of the Deal Advisory & Strategy practice of KPMG in Brazil and the South America region.

Companies’ ongoing search to mitigate their carbon footprint, paired with new decarbonization-focused regulations and favorable geographic conditions to produce renewable energy, create unique opportunities for Latin American investors and entrepreneurs, explains Almeida.

The region should also benefit from the global nearshoring phenomenon, as multinationals continue moving businesses and manufacturing facilities closer to home.

“The supply-chain crisis, aggravated by the pandemic and geopolitical tensions between the US and China, is expected to generate M&A opportunities for Latin American countries, especially Mexico,” says Almeida. “Proximity, time-zone alignment, cost savings and low labor costs are some of the drivers that make Mexico appealing to investors and multinationals.”

Ready for action

One company seeking to tap into emerging business opportunities brought about by the nearshoring movement is real-estate investment trust Fibra Storage [BMV:STORAGE]. This news service reported in March that the Mexico City-based operator of mini warehouses plans to launch a follow-on offering by the end of the year to grow its property portfolio in the cities of Guadalajara, Monterrey, and Mexico City.

“Mini warehouses connect very well to supply chains that are created by nearshoring,” opines Fibra Storage’s CEO, Diego Ysita.

Another player interested in similar opportunities is Marea Group, a nascent investment firm focused on nearshoring investments. The Mexico City-based group plans to invest in companies that stand to benefit from the economic advantages of the US-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA) in 2020. Marea expects to complete its first transaction by the end of the summer, as reported.

Other promising sectors include financial services, telecoms, agribusiness, infrastructure and technology, says Almeida.

Analytics by Santosh Shetty