MEXICO: An Introduction to Corporate/M&A: The Elite
M&A activity in Mexico has remained steady in recent years. 2024 saw a slight decrease in the number of M&A transactions, compared to 2023, but an increase of more than 20% in the total value of the deals according to TTR Data, which shows promising signs for the years ahead. The last year was marked mostly by political and economic uncertainty arising from Presidential elections in both Mexico and the US. The US is Mexico’s biggest and most important commercial partner. Although the result did not cause a reduction in the value of M&A activity in the immediate term, it was a factor in holding back M&A activity because of the uncertainty it generated among investors. Other challenges such as the spectre of a global recession, persistent inflation and elevated interest rates also impacted the overall M&A activity levels in the country.
Opportunities
M&A activity in Mexico in 2024 showed the strength of the software sector in the country. It had the most M&A transactions during the course of the year, with 16% of the total M&A transactions in 2024 according to TTR Data. Other sectors, such as real estate and internet, software & IT services showed significant M&A total transactions in Mexico, but represented a lower percentage compared to 2023, while the real estate sector represented 12% of the total M&A transactions but had a fall of 4% compared to 2023.
Meanwhile the internet, software & IT services represented 8% of the total M&A transactions, despite a fall of 26% compared to 2023. It is also worth noting that although the banking and investment sector was the sector with the fourth most transactions, it showed a reduction of 29%, compared to 2023 according to TTR Data. From an international standpoint (and especially in cases where a Mexican company was a target), the manufacturing sector showed important growth. These figures in general show promising signs for overall M&A activity in Mexico for both domestic and international transactions.
The strategic partnership between Mexico and the United States has long been a cornerstone of Mexico's appeal to foreign investors. This relationship, now more than ever, is pivotal as geopolitical shifts and trade tensions, especially between the United States and China, reconfigure global supply chains. Mexico's ascension as the premier foreign trade partner of the United States is not merely a title.
The demographic and geographical advantages of Mexico still underscore the country's attractiveness for nearshoring activities, which is boosted by the fact that Mexico has the most trade agreements in force. As businesses seek to mitigate risks by relocating manufacturing and operational bases closer to the US, 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 activity.
Challenges
However, the opportunities in M&A activity in Mexico are not without their challenges. The political climates in both Mexico and the United States, which have recently elected governments, introduce elements of uncertainty that could impact M&A dynamics. In the coming years, the relationship between Mexico and the United States will face significant difficulties, as recent conversations around the United States stance on imposing tariffs on Mexican imports (as publicly stated by President Donald Trump), as well as the upcoming renegotiations of the USMCA have shown. These shifting dynamics have created challenges in the bilateral relationship between the two countries, which can impact M&A activity in Mexico. Additionally, and from a domestic standpoint the full extent of the Mexican government's stance on foreign investment and policy orientations towards critical sectors like energy, natural resources and fintech is yet to be seen. This is another source of uncertainty among investors in the country, directly impacting M&A activity.
Another challenge that may shape the M&A landscape in Mexico is the current standing of ESG criteria. President Trump has emphasised that his government will prioritise economic growth of businesses rather than ESG criteria. Therefore, even though in several sectors in Mexico, both public and private companies have been, actively moving towards ESG (such as the recently issued sustainable taxonomy (taxonomía sostenible) by the Ministry of Finance, which illustrates a commitment to sustainable development, offering a clear framework for investors and companies aiming to align with sustainability and other ESG principles), the general advancement of ESG criteria will be uncertain, which could potentially hinder its growing relationship with M&A activity in Mexico.
Additionally, the role of artificial intelligence (AI) in M&A cannot be overstated. As AI continues to revolutionise industries, its integration into M&A transactions and processes in Mexico is anticipated to bring about efficiency, innovation and transformative opportunities. This is also expected to further attract sources of investment in various sectors, as AI impacts how companies carry out their operations. For example, the healthcare sector is showing clear signs of this. AI-driven solutions are optimising operations and improving diagnostics. We anticipate that AI will have an impact in several sectors which will have an effect on M&A activity in Mexico in 2025 and beyond.
Conclusion
In conclusion, while the M&A market in Mexico navigates a period of promise and unpredictability, the confluence of technological advancements, strategic nearshoring benefits and a focus on sustainable investments makes Mexico 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 on the cusp of significant transformation, promising growth and a deeper integration into the global economy.