MEXICO: An Introduction to Corporate/M&A: Highly Regarded
M&A activity in Mexico has yet to match the level of activity it reached in 2019, mainly owing to the uncertainty in the markets that was generated by the uneven post-pandemic recovery and certain market challenges, including the spectre of global recessions, persistent inflation and elevated interest rates. However, the past year – even though marked by uncertainty among investors – recorded the highest levels of M&A activity in Mexico since 2020. This leads the authors to believe that Mexico’s M&A sector is poised for growth, buoyed by a confluence of factors that herald a bright future for investors and businesses alike in 2024 and beyond.
The strategic partnership between Mexico and the USA has long been a cornerstone of Mexico’s appeal to foreign investors. This relationship is more pivotal now than ever, as geopolitical shifts and trade tensions – especially between the USA and China – reconfigure global supply chains. Mexico’s ascension as the premier foreign trade partner of the USA is not merely a title; it is a testament to the country’s burgeoning role in the global economy. This was also consolidated through the recent execution of the United States-Mexico-Canada Agreement (USMCA), which intended to update key terms of the previous North American Free Trade Agreement (NAFTA). This dynamic is further enriched by increasing investments from Europe and Asia, diversifying Mexico’s economic engagements and enhancing its M&A prospects.
The demographic and geographic advantages of Mexico, combined with the anticipated stabilisation of interest rates in the USA and Mexico, underscore the country’s attractiveness for nearshoring activities – something that is also boosted by Mexico’s commercial force as the country with the most trade agreements in force. As businesses seek to mitigate risks by relocating manufacturing and operational bases closer to the USA, Mexico emerges as a logical choice. This nearshoring trend is expected to stimulate demand across various sectors in the Mexican economy, creating a fertile ground for M&A activities in the region.
Mexico’s M&A activity has historically been most impacted by the industrial and manufacturing sector, given Mexico’s geopolitical and labour conditions. Even though M&A activity in this sector has gradually reduced since 2019 and considering the overall decrease of the M&A activity in Mexico in recent years, it is still the most important sector for Mexico’s overall M&A activity – representing 24% of the total of Mexico’s M&A transactions in 2023 (Rión M&A). The relevance of the M&A activity in this sector has also brought opportunities in the energy and natural resources sectors as well as in the logistics industries in recent years – given that these are directly related to the manufacturing industry. The consumer goods and real estate sectors are also an important part of the M&A activity in Mexico, representing 16% and 14% (respectively) of the total M&A transactions carried out in Mexico in 2023. The hospitality and pharmaceutical sectors have also gained importance in Mexico’s M&A activity in recent years.
It is also worth noting that, in 2023, the industry that registered the highest growth compared with the previous year is the financial services sector, in respect of the banking and means of payment industries. This, together with global trends in the growth in the M&A activity in this sector, shows promising signs of a continuous escalation in the M&A activity for Mexico’s financial services sector in 2024 and beyond.
However, the aforementioned landscape of opportunity in Mexico’s M&A activity is not without its challenges. The political climates in both Mexico and the USA, alongside global geopolitical tensions and the upcoming elections in numerous countries, introduce elements of uncertainty that could impact M&A dynamics. The focus on Mexico’s 2024 elections, deemed crucial for the country’s future, raises questions about the next government’s stance on foreign investment and policy orientations towards critical sectors such as energy, natural resources, and fintech. The result of the elections in the USA also poses a significant level of uncertainty in the M&A activity in Mexico, as investors are particularly concerned about the measures that could be taken in matters such as customs and foreign policy standings should Donald Trump win the Presidential elections this year.
Amid these uncertainties, a significant trend that will shape the M&A landscape in Mexico is the growing emphasis on ESG criteria. The global push towards sustainability has made ESG integration not just a moral imperative but a strategic advantage. Mexico’s adoption of the Sustainable Taxonomy (Taxonomía Sostenible) by the Ministry of Finance illustrates a commitment to sustainable development, offering a clear framework for investors and companies aiming to align with sustainability and other ESG principles. This alignment is expected to unlock new investment avenues and enhance the attractiveness of companies in the M&A marketplace.
Furthermore, the role of AI in M&A cannot be overstated. As AI continues to revolutionise industries, its integration into the M&A transactions and processes in Mexico is expected to bring about efficiency, innovation, and transformative opportunities. It is anticipated that this will further attract attention from sources of investment in several sectors, as AI impacts how companies carry out their operations. By way of example, the healthcare sector is showing clear signs of this change, whereby AI-driven solutions are optimising operations and improving diagnostics. The impact of AI in several sectors is expected to have an effect on the M&A activity in Mexico in 2024 and beyond.
In conclusion, while the M&A market in Mexico navigates through a period of both promise and unpredictability, the confluence of technological advancement, strategic nearshoring benefits and a focus on sustainable investment positions Mexico as a compelling destination for global investors. The cautious optimism of investors, mindful of the political and economic contexts, reflects a balanced approach to harnessing Mexico’s potential. As Mexico strides into a pivotal year, the M&A sector stands at the cusp of significant transformation, promising not only growth but also a deeper integration into the global economic fabric.