Having come from a deal-making business background, President Trump is considered a business-friendly head of state. Just weeks into his administration, he has already signaled that he wants to reduce federal regulations on businesses to unfetter domestic job growth.
His economic policies, however, are intended to benefit “America first”—quite possibly at the expense of foreign trading partners. One of his first actions as president was to sign an executive order to pull the United States out of the Trans- Pacific Partnership. He has also stated his intent to renegotiate the North American Free Trade Agreement (NAFTA), which has been the foundation of trade among the United States,
Canada and Mexico since 1994. This could have detrimental implications for one of Latin America’s major economies.
This protectionist attitude towards trade may have implications on M&A activity. So what can we expect in the coming months in Latin America (LATAM)?
Let’s start by reviewing the state of deal activity today as outlined in the latest Interlinks Deal Flow Predictor, which forecasts
M&A volumes through Q2 2017. Intralinks’ involvement in the early stages of a significant percentage of the world’s M&A transactions gives us unique insight into the expected volume of future announced M&A deals.
Early-stage M&A activity in LATAM increased by 11 percent compared to the same period last year, almost reversing the previous quarter’s 13 percent YoY decline. This means we are very likely to see more announced deals in the next six months. The increase in the region’s early-stage M&A activity was due mainly to strong performances from Argentina (up 80 percent) and Mexico (up 25 percent), with no growth in Brazil. Nevertheless, Brazil might still surprise on the upside in 2017 due to the number of corporate restructurings that are expected to come to market.
Before the recent U.S. presidential election, the Latin America region saw four consecutive quarters of alternating high-single and double-digit percentage increases and decreases in early-stage M&A activity. The volatility has been driven by Brazil’s severe, ongoing two-year economic recession. But this volatility could indeed continue due to concerns over President Trump’s immigration and trade policies, which could heavily impact the
Mexican economy. The Mexican peso has fallen sharply since the election on the belief that President Trump will seek to negotiate a more stringent trading relationship with Mexico.
The forces that have been powering global M&A activity over the past three years – namely, a global environment of low inflation, below-trend economic growth and ultra-low interest rates –remain in place. However, storm clouds might be gathering which could affect global M&A over the next few years: the UK government’s exit negotiations with the European Union (EU) and the as-yet undefined relationship with its trading partners post-“Brexit”; Donald Trump’s unorthodox presidency; and the rise of nationalism, anti-globalization and protectionism.
For LATAM in particular, exposure to the US could cause volatility in dealmaking in 2017. President Trump has emphatically stated his support for domestic business and jobs, but he is not keen on any deals that might shift
American companies or jobs overseas. For example, he is already talking about imposing stiff tariffs on automakers and other manufacturers if they move a significant number of US jobs to Mexico or other countries.
Right now, global M&A activity is increasing. But, with radical trade reform on the way which impacts major LATAM economies, M&A volatility could increase. Currently, we’re seeing M&A growth over the next six months, but it wouldn’t be surprising if this dips at the end of 2017.
