COLOMBIA: An Introduction to Corporate/M&A

The Market in 2024

Colombia’s economic landscape was negatively affected during the first half of 2024 by, among other things, the reduction of oil prices and the removal of certain incentives linked to this industry. FDI flows in Q1 of 2024 (USD 3.62 billion) decreased by 12% compared to the same period in 2023 (USD 4.11 billion).

However, forecasts pick up for the second semester of 2024 and the economy is expected to grow in 2025. The OECD’s projection for Colombia’s GDP growth in 2024 is 1.2%, potentially increasing to up to 3.3% in 2025, above the regional average growth forecast for that year. Such increase will be mainly fuelled by an increase in local consumption and exports. Nonetheless, investors are expected to remain cautious as long as policy uncertainty persists in the country. The Colombian government would have to demonstrate fiscal discipline, as well as commitment to a traditional macroeconomic framework in order to meet market expectations.

As for access to credit, during Q2 of 2024, the Central Bank further reduced the benchmark interest rate by 50 basis points, bringing it down to 11.25%. In addition to this, commercial bank interest rate competition is intensifying, with major financial institutions lowering rates, initially for mortgage loans and commercial loans. Against this evolving credit market backdrop, investors may find financing terms akin to those seen in prior years, with improved interest rates available for securing local financing to leverage M&A transactions.

According to TTR, deal count in Colombia fell by 8.15% by Q2 2024. Despite this decline, the Colombian deal pipeline is one the most stable in the region in contrast to the two-digit decrease seen in other Latin American jurisdictions, such as Chile, which faced a 37% dip, and Brazil, which saw a fall of 27%. The software, IT and internet sector is the leading industry in terms of transaction volume in Colombia. As of Q2 2024, TTR reported 30 transactions in this sector. According to EMIS, the finance and insurance industry ranked second, with roughly ten transactions reported during the same period.

Key Sectors

There have also been a fair proportion of big-ticket deals in 2024. Among the most significant is the announced acquisition by Patria Investments (a global asset manager and Latin American market leader) of Nexus Capital (an independent alternative real estate asset manager in Colombia). This deal is expected to increase the value of Patria’s real estate assets under management in Colombia to USD2.2 billion. Other notable transactions include the announcement by Protección (a subsidiary of Grupo Sura) of the USD60 million sale of a controlling stake in Crecer (El Salvador’s pension fund) to Panama’s Centro Financiero Crecer. Urbaser (a Spanish environmental services company) is set to significantly expand its footprint in Colombia, with the announced purchase of Descont and Succión y Carga (local waste management companies). Both of those deals were signed in July. Start-ups have also been at the forefront of significant cross-border transactions – eg, Fluvip (a leading Latin American marketing tech company) acquiring SocialGest (a social media management tool) along with a majority stake in several companies across the Americas, and the acquisition by Girasol Payment Solutions (a payments company based in Curaçao) of Finzi (a Colombian fintech).

Despite the overall decrease in deal numbers, the fintech industry has shown remarkable resilience, with a significant increase in funding compared to Q1 of 2023. In this context, Colombia has emerged as the second most active market in Latin America during Q1 of 2024. This trend is evidenced by notable fundraisings for start-ups in the fintech sector, such as Bold’s USD50 million Series C round and Simetrik’s USD55 million Series B round, led by Goldman Sachs.

Energy remains one of the most active industries for deal-making. Following its joint venture with Isagen, Atlas Renewables recently acquired the Shangri-La photovoltaic project (201 MW of installed capacity), the biggest to date in the Tolima department. Despite delays in UPME (the Mining and Energy Planning Unit) assigning grid connections to incoming projects, interest from prominent foreign players for ready-to-build (RTB) and commercial operation date (COD) projects has not diminished. On the hydrogen front, Colombia is set to revamp its regulations to further its clean energy transition.

Private equity players remain active in the market. According to the 2023–2024 industry report produced by Colcapital (the Colombian association of private equity funds) and Deloitte, private equity funds have deployed USD16 billion and still hold USD4.12 billion in dry powder to invest locally.

Legal and Regulatory Developments

Regarding the 2022–2026 congressional agenda, the situation is complex. At the beginning of his term, President Petro planned to introduce a package of bills aimed at the wholesale amendment of the healthcare system, enhancing labour regulations, transforming education into a fundamental right for every citizen, and putting in place a predominantly public pension system. Nevertheless, at the midpoint of the presidential term, only the pension bill has passed; both the healthcare and education bills were rejected by Congress; and the labour bill is still being discussed, with three debates remaining.

As per the legal framework improvements, Decree 46 of 2024 was issued. This is a significant milestone in the regulation of conflicts of interest and administrator’s fiduciary duty regulation, since it further develops the definition and corporate processes in connection with conflicts of interest, codifies the long-standing judicial standard of the business judgement rule and enables derivate shareholders’ claims.

Moreover, Colombia has joined the European Union, and much of the rest of the world, in committed to enhancing ESG reporting and corporate sustainability regulation in order to cover not only large companies but also SMEs. In November 2023, the Superintendency of Corporations issued Chapter XV of the Basic Legal Circular. This new chapter establishes the first-ever regulatory framework for sustainability reporting within the real sector in Colombia. This, together with the boom in ESG-related transactions worldwide, is likely to have an impact on upcoming transactions, where sustainable aspects are increasingly relevant. This is set to increase visibility and disclosure in sustainability standards, which, according to Colcapital’s and Deloitte’s 2023–2024 industry report, factor in 96.7% of the private equity deals locally.

Regarding regulatory prospects for the coming months, new developments are poised to transform both the traditional financial sector and the fintech industry. In Q1 of 2024, the Superintendency of Finance (SF) introduced a strategic roadmap for the implementation of “open finance”. In this context, the SF issued External Circular 004 of 2024, which outlines the regulatory standards for adopting open finance. Concurrently, the Central Bank is developing the necessary regulations and operational framework for an immediate payments system, which is projected to be operational by Q2 of 2025. These initiatives are expected to enhance competition in the credit market and promote broader access to the financial system.