Post-pandemic restructuring and consolidation, along with exploding interest in digital companies, helped trigger double-digit transactional activity growth in Mexico.

And the digital sector will carry this trend into 2022, according to M&A specialists.

“Investors managed to expand their operations through the purchase and sale of assets during the pandemic period, with the aim of capturing financial muscle,” Marcela Chacón, Transactional Track Record (TTR) research and business intelligence analyst for Latin America, told BNamericas.

Over the next months, additional post-pandemic driven transactions could emerge, including portfolio purchases, company buyouts, and non-strategic asset divestments, while “the market continues to see signs of stability in the country,” she added.

From January to October, TTR identified 308 transactions in Mexico – including mergers, acquisitions, venture capital, private equity and asset acquisition. The figure is up 24% compared to the same period last year. Total disclosed deal value was US$16.5bn, up 43%.

Of the total transactions, 133 related to venture capital, up 55% from the 86 VC deals in the same period of 2020. Total reported deal value surged 275% to US$3.96bn.

“One sector that has seen increased specialization and sophistication is the venture capital sector, where venture capital funds have been making increasingly large investments in early-stage companies and startups,” Ignacio Armida, an M&A specialist at law firm Mijares, Angoitia, Cortés y Fuentes (MACF) told TTR. 

“This has resulted in a very dynamic and competitive venture capital scene.”

Armida and Francisco Glennie, who is also a partner at MACF, identified fintechs, ICT companies and the manufacturing sector as most likely to provide the biggest opportunities next year. 

Glennie said the long licensing period following the 2018 fintech law has largely finished, with many players receiving authorization to operate as fintechs and be regulated accordingly.

“We believe that once the focus of companies shifts from procuring their licenses to growing their business, the sector will start to become more consolidated,” said Glennie. This development will further drive M&A activity in the industry.

Private equity deals also accelerated. Although the number of equity transactions grew just 20%, to 18 from 15 during the same period last year, deal value rose 225% to US$825mn.

But the transactional market faces downside risks, Armida said, citing general uncertainty exacerbated by government plans to overhaul the electric power sector via constitutional reforms.

Attempts to pass the reforms have been postponed to 2022. The government proposes to cancel private power generation and sales contracts. Critics claim the idea alone raises doubts about a commitment to the rule of law, hindering investment in other sectors. 

“In the case of Mexico, the political uncertainty has undoubtedly affected certain sectors, but in general the M&A markets and players have shown their resilience and remained strong,” said Armida.

“Despite the uncertainty, we have seen an increase in the interest of foreign players to invest and acquire Mexican companies. Evidence of this trend is the venture capital sector, which … has been very active and is expected to remain that way,” he added.

According to TTR, foreign private equity and venture capital funds registered a 75% increase in investment in Mexican companies from January to October.

TTR registered a lower number of AA asset acquisition deals, falling 11% to 42, but value skyrocketed 445% to US$5.75bn.

Key sectors were real estate, finance and insurance, construction, and oil and gas- Activity was driven by funds or companies looking to pick up cheap assets that were sold under corporate restructuring in response to the pandemic, said Chacón.