Latin fervour as mergers and acquisitions pick up

One corner of the globe has been bristling with life this year, even as much of the dealmaking world was struggling to generate a meaningful recovery. Latin America is on course for a record year in mergers and acquisitions activity, exhibiting a pick-up that has largely eluded the US and Europe, where confidence and activity remain patchy.

By the end of August, the region had already logged its biggest year to date, according to data provider Dealogic, with four months still to run.

Even excluding the restructuring of billionaire Carlos Slim’s telecoms empire – at $28bn the region’s largest deal – Latin America’s share of global M&A topped 6 per cent to the end of August. That sets another record and compares with just 3.7 per cent last year.

For the people charged with finding, developing and executing deals in the region, it has meant a busy time – and a growing haul of air miles.

One regional boss at a Wall Street institution laments skipping between six countries, as well as back and forth to New York, in the previous month. Another bemoans the fact that while he has been to Peru countless times, he has yet to visit Machu Picchu.

But the growing importance of Latin America to clients of the large investment banks means the region’s bankers are finding themselves in the spotlight.

“It’s as high as it has ever been,” notes Antonio Pereira, the head of M&A and corporate finance for Goldman Sachs in Brazil, referring to his country’s profile within the bank.

“This is an area we are investing in and, like India and China, we believe this is a huge opportunity for the firm,” adds Mr Pereira, who has been based in São Paulo for almost 12 years but originally comes from Rio de Janeiro.

Others who have worked in the region for many years also appreciate its coming of age. Nicolas Aguzin, chief executive of Latin America for JP Morgan, explains that the development of local capital markets – most notably in Brazil – has transformed the business landscape in the past decade.

“In the past five years, we have seen the emergence of Latin American multinationals – the multilatinas,” says Mr Aguzin, an Argentine citizen. “With that you have to cover clients on a much more global basis.”

Udi Margulies, who manages M&A in the region for Barclays Capital, agrees that in Brazil in particular, companies now have global ambitions.

“We’re seeing the creation of national champions in Brazil who are encouraged to merge with local competitors or expand internationally,” he says.

Those include Vale, the mining company; Itaú and Banco do Brasil in financial services; and Marfrig and JBS, the protein producers that bought Keystone and Pilgrim’s Pride, respectively, in the US.

Bankers also point to greater interest in dealmaking around the rest of the continent as contributing to an upswing in activity.

“In Mexico, the team is the busiest they’ve been in years,” says Jim Allen, head of M&A in Latin America for Morgan Stanley. “Mexico is starting to get close to its fair share of regional activity, given the size of its economy.”

Eduardo Cruz, who in May this year was charged with co-ordinating all of Citigroup’s investment and corporate banking in the region after a period when the top regional job remained vacant, argues that companies are looking for growth further afield.

“The Brazilian market is big enough that you can do really well growing inside Brazil,” notes Mr Cruz, who grew up in Nicaragua. “In the rest of the region, there is more interest in transactions looking north and south. And companies in the Andean region are interested in sizeable opportunities in the US.”

The interest of Latin American companies in deals outside their home markets is matched by global companies’ desire to tap into the region.

“We’ve seen a lot of clients saying, ‘We need to grow via M&A in this region and we want to get educated,’” says Barclays’ Mr Margulies.

Most notably, Asian companies have looked to the continent as a place to secure natural resources. Mitsui, the Japanese trading and investment company, in 2008 increased its investment in Valepar, the controlling shareholder of Vale, the Brazilian mining group, while Sumitomo this year paid $1.9bn for 30 per cent of Mineração Usiminas, another Brazilian mining company.

“We’re going to see much more cross-border activity intra-emerging markets,” says Pedro Chomnalez, head of emerging markets investment banking at Credit Suisse.

For Credit Suisse, which tops the M&A league tables in Latin America, that means working on co-ordinating the bank’s efforts with clients in different emerging regions. This month, the bank hosted a conference in Beijing specifically for its Latin American clients.

The basic logic, notes JP Morgan’s Mr Aguzin, is that these countries “are short products that Latin America is long. And companies need substantial capital to develop these assets – all these transactions are devised to inject capital to develop the assets themselves.”

Yet while the companies and economies of Latin America become ever more global, the banks that aim to do deals there emphasise the importance of being local. “In Latin America, the old coverage model of flying back and forth to the region from New York doesn’t work anymore,” says Mr Chomnalez. “If you are not present in the local markets with critical mass and substance, you can’t be top ranked.”

That includes a command of the local language, with most bankers overseeing the region speaking both Spanish and Portuguese – or at least Portañol, the make-do combination of the two that serves its purpose.

And as the deals flow, competition between the advisers increases to win their share of the business. “Everyone in the industry is focused on emerging markets, investing heavily and building teams and local presence,” says Mr Chomnalez. “That includes the commercial banks and local players in every market as well.”

Citigroup’s Mr Cruz is among the many who is actively hiring, hoping to capitalise on Citi’s corporate banking infrastructure in the region to win more investment banking business.

“Citi is the only global bank that has had a presence in the majority of these countries for decades – through thick and thin,” he says, adding that he has found a complete transformation in terms of business opportunity as he has travelled the countries in the region.

“In the current age of globalisation, once people realise that a country is a big market opportunity there is no turning back,” adds Goldman Sachs’ Mr Pereira. “It’s a self-fulfilling prophecy. The level of sophistication that you’ll see in deals, and the global aspirations, are here to stay.”