22 February 2013

Snapshot: Mexico

M&A in Mexico, the emerging market right on the doorstep of the US, has started the year off well, despite the peso slipping amid a broad weakening of emerging market currencies on the back of slowing growth worries. At the time of writing, there was a total of 12 M&A deals with a known combined value of USD 1,144 million targeting Mexican companies in the first seven and a half weeks of 2013, according to Zephyr, the M&A database published by Bureau van Dijk. This is a significant improvement in monetary terms on the 14 transactions worth just USD 351 million signed off over the same period at the beginning of 2012, but down on the 15 deals worth USD 4,455 million recorded in 2011.

The largest announced deal to date involved Coca-Cola Femsa bolstering its domestic presence with the purchase of family-owned bottler Grupo Yoli for USD 639 million, just five weeks after accelerating its exposure beyond Latin America towards the Philippines market. The beverage behemoth has been on a domestic acquisition spree of late, completing three Mexican purchases worth a combined USD 2,010 million in 2011 and 2012. Since 2004, it has announced or completed seven global deals which targeted, among others, Latin American countries such as Panama, Colombia and Brazil.

This is not the only deal involving the beverage segment. As part of Anheuser-Busch InBev’s multi-billion dollar acquisition of Grupo Modelo, the Belgian brewing giant is selling Modelo’s Piedras Negras brewery near the US border to Constellation Brands, and granted the world’s largest wine company perpetual rights for Corona and other Modelo labels in the US, for USD 2,900 million. The decision to sell Compañía Cervecera de Coahuila, the brewery that produces Corona, Corona Light and Modelo Especial, is aimed at easing US objections to the USD 20,100 million takeover of Grupo Modelo, which was announced last year.

In a different sector, telecoms player América Móvil is snapping up the media and advertising division of Corporación Interamericana de Entretenimiento for USD 132 million in a deal which gives it publicity rights to Mexican professional soccer teams and stadiums. América Móvil may well be a leading wireless provider with 256 million subscribers across 18 countries in the Americas, but it is yet to enter the domestic television market as the government has barred access due to competition concerns, given the group’s dominance in the phone and internet segments.

Despite the peso faltering somewhat on the back of weak industrial production figures for December and rumours Mexico’s central bank could cut interest rates in the coming months, reports indicate investors are remaining optimistic about the country. The Financial Times suggests the upbeat sentiment comes as Mexico seems to have inflation under control, low and steady interest rates, a small deficit and low government debt as a percentage of gross domestic product. It added that if meaningful reforms in vital economic areas such as energy and tax are actually passed then such a move could open up foreign direct investment.

© Zephyr