Santamarina Steta

Visión 2023: Diagnóstico del mercado de Fusiones y Adquisiciones

How did 2022 close in the world and Mexico regarding mergers and acquisitions (M&A)? What does 2023 look like globally and in Mexico in transactional matters, specifically in terms of M&A? Jorge León Orantes, partner and expert in the corporate transactional advisory to national and international companies in the automotive, financial, education, technology, and entertainment sectors, shares with us his outlook for this market in 2023.

Current Status

The beginning of a new year is a great time to look back and see how 2022 fared about the previous two years globally and in Mexico as well. It is also a great time to analyze expectations for 2023.

In the wake of the COVID pandemic, global M&A transactions were historically high, and the number of transactions seen worldwide was impressive. The cash stimulus provided by the various governments and the savings that companies with strong balance sheets were already bringing in to make acquisitions showed us an extremely active 2020 and 2021. But this changed in 2022. 

Globally, during 2022, in contrast to 2021, we saw a reduction of approximately 30% in the value of transactions and about 20% in the number of transactions. We consider this situation to be typical, as it ended the active buying momentum of the previous year, and the significant decrease of 30% in value and 20% in the number of deals signifies a return, in general terms, to the usual numbers that were in place before the COVID-19 pandemic began.  

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

Outlook for 2023

The outlook for Mexico is very positive for 2023. The concept of nearshoring is triggering regional movements where it is certainly, in Mexico's interest to be so close to the United States and North America. At the North American Summit held in Mexico in January, it was announced that the North American region is being closed and strengthened. That same month, Credit Suisse published data showing that Mexico attracted approximately 2,200,000,000,000.00 dollars for nearshoring from November 2022 to the end of February 2023. This demonstrates that the nearshoring phenomenon is proving to be highly positive.

Nearshoring is a global phenomenon that emerged to protect regional supply chains following the COVID pandemic. As part of this phenomenon, in January, Brazil and Argentina announced their intention to have a common currency to strengthen the South American market, similar to what the Euro did with the European Union. In Mexico, on the other hand, the main focus that has been given to this concept is in the automotive industry. For example, the investment made by BMW in its plant in the North, where will invest approximately 850,000,000.00 dollars. In Nuevo Leon, we have seen an increase in Asian investment in the auto parts market, in addition to Tesla's mega giga-factory in Monterrey.

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

Challenges to consider

In the current situation, there are three significant challenges worth considering. One of them is infrastructure, the other is skilled labor, and the third is to look for alternative sources of investment in 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 electricity infrastructure, we need to strengthen telecommunications, road, and rail infrastructure, at least to continue attracting and providing the service expected by investors who come to Mexico with nearshoring.

As far as labor is concerned, Mexico must compete with its geographic 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 wage level, an objective that has not been fully achieved so far and that we hope to continue making significant progress towards.

Mexico must compete more with skilled labor than with cheap labor. For several years, the country had the most engineers in the world, and this means that it is 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, they have undermined it and even reversed the Education Reform. Without this boost to education, we would risk not having the qualified labor force we need to remain competitive in the international market. 

As for alternative sources of investment, our most significant investment continues to be the United States, but there are other investors to which we should pay attention, such as China. This Asian country was closed for a long time after the COVID pandemic, but following the opening of China earlier this year, China is turning to Mexico in particular, which is a change of trend in China's relationship with Latin America, where it used to focus mainly on the south of America, such as Brazil and Argentina.  

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

This should be quite a 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.