Vision 2023: Diagnosis of the Mergers and Acquisitions market

How did 2022 end worldwide and in Mexico in terms of mergers and acquisitions (M&A)? How does 2023 look globally and in Mexico in terms of transactional issues, specifically speaking of M&A? Jorge León Orantes, partner and expert in transactional corporate advice to national and international companies in the automotive, financial, educational, technological and entertainment sectors, shares his perspectives for this market in 2023.

Current situation

The beginning of a year is a good time to look back and see how 2022 performed in relation to the previous two years, globally and also in Mexico. It is also a good time to analyze expectations for 2023.

In the wake of the COVID pandemic, M&A transactional operations globally were historically high, the number of operations seen around the world was impressive. The cash stimulus provided by different governments and the savings that companies with solid balance sheets already had to make acquisitions showed us an extremely active 2020 and 2021. But this changed in 2022. 

Globally, during 2022, in contrast to 2021, there was a reduction of approximately 30% in the value of transactions and approximately 20% in the number of transactions globally. We consider this situation normal, since it ended the active buying momentum of the previous year and the considerable decrease of 30% in value and 20% in the number of transactions really means a return, in general terms, to the normal numbers that existed before the COVID-19 pandemic began.  

Mexico, on the other hand, did not have this same impact. Although there was a decrease in general terms, in 2022 there was a 1% increase in the number of operations, compared to 2021. The operations carried out in the country, according to a report recently published by TTE Data, left approximately $16,000,000,000.00 dollars in mergers and acquisitions in Mexico. One of the most important was the capital investment made by Apollo Global Management in Aeroméxico for approximately $2,400,000,000.00 dollars, in which Santamarina + Steta had the opportunity to participate. Another important operation in 2022 was the substantial capital injection that Altán Redes made to continue with its plans to bring telecommunications infrastructure to the entire Republic and in which we also participated.

Expectations for 2023

The expectation for Mexico is very positive for 2023. The concept of nearshoring is triggering regional movements where Mexico certainly benefits from being so close to the United States and in North America. At the North American Summit held in Mexico in January, it was announced that the North American region is being sought to be closed and strengthened. That same month, Credit Suisse published data showing that Mexico attracted approximately $2,200,000,000.00 dollars per year. nearshoring from November 2022 to the end of February 2023. The above shows that the phenomenon of nearshoring is proving extremely positive. 

The concept of nearshoring It is a global phenomenon that emerged to protect regional supply chains as a result of the COVID pandemic. As part of this phenomenon, in January Brazil and Argentina announced the intention to have a common currency that would strengthen the South American market, something similar to what the Euro did with the European Union. On the other hand, in Mexico the main focus that has been given to this concept is in the automotive industry. For example, the investment that BMW made in its plant in the North, where it will invest approximately $850 dollars. In Nuevo León, we have seen an increase in Asian investment in the auto parts market, in addition to the mega giga-factory from Tesla in Monterrey. 

The country should benefit from all these movements and we hope that 2023 will continue to be an active year. However, this level of activity is not expected to be uniform throughout the Mexican Republic. The most benefited will of course be and are the northern states, although they are not the only ones.

Challenges to consider

In the current situation, there are three important challenges worth considering. One is infrastructure, the other is skilled labor, and the third is finding alternative sources of investment to the United States. 

In terms of infrastructure, Mexico must strengthen its electrical infrastructure and also consider renewable energy sources that will allow investors to meet their international commitments.

In addition to the electrical infrastructure, we need to strengthen the telecommunications, road and rail infrastructure, at least to be able to continue attracting and providing the service that investors who come to Mexico with the nearshoring.  

As far as labor is concerned, Mexico must compete with its geographical advantage and cheap labor. Let us remember that one of the objectives of the Free Trade Agreement, when it was signed in 1994, was to raise the standard of living of Mexican workers and the level of wages, an objective that has not been fully achieved so far and we hope that important progress will continue to be made in that direction.

Mexico must compete with skilled labor rather than cheap labor. For several years, the country had the most engineers in the world, and that makes it very competitive for companies that want to come and invest in Mexico. Unfortunately, the current administration has not seen education as one of its basic banners; on the contrary, it has undermined it and even reversed the Educational Reform. Without this push for education, we run the risk of not having the skilled labor we need to remain competitive in the international market. An effort in education by the Government would be very useful. 

As for alternative sources of investment, our most important investor remains the United States, but there are other investors to watch, such as China. This Asian country was closed for a long time after the COVID pandemic, but following the opening of China at the beginning of this year, China is turning to Mexico in particular, which is a change in trend in China's relationship with Latin America, where it was mainly focused more on South America, such as Brazil and Argentina.  

The relationship with China is very interesting because although we are competitors as an investment destination, we can also complement each other and see ourselves as reciprocal investment destinations, since for Chinese investors we can be a bridge to enter the North American market. 

This should be a very good year for Mexico, but only if the government and the economic sector do what they must do to continue attracting investment to the country.