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Latin America M&A down but worst might be over, says mergermarket

For the first half of the year mergers and acquisitions in Latin America reached a total of USD29.1bn and 167 deals, down from USD52bn and 261 deals during the same period last year, ac

For the first half of the year mergers and acquisitions in Latin America reached a total of USD29.1bn and 167 deals, down from USD52bn and 261 deals during the same period last year, according to a report by mergermarket.

Despite the near 45 per cent drop in value, and a 36 per cent drop in deal volume, there are indications that the worst may be over. Q2 saw a jump of 82 per cent in deal value to USD18.8bn compared to Q1 09, whilst deal volume remained steady.

Between 2003 and 2007, Brazil always had the greatest share of Latin American M&A value averaging 38 per cent of total activity by value and 32.6 per cent by volume. For 2008 and the first half of 2009, the value of Brazilian M&A represented more than 70 per cent of total Latin American deal value. Deal activity increased to over 46 per cent of all Latin American deals over the last 18 months.

Although not immune to the overall global economic climate, Brazil remained the main driver of Latin American M&A value and is possibly the key to an improved second half of 2009 for the region as a whole.

Mexico, from a high of almost 40 per cent in 2006, has dropped to just under two per cent of total deal value so far this year. After two successive increases, Chile contributed a mere 2.3 per cent to overall deal value in 2009.

Fourteen deals valued in excess of USD500m were announced during H1 2009, just six deals less than the 20 recorded during the first half of 2008. This is despite the fact that the first half of 2008 had total deal values of USD52bn compared to just under USD30bn so far this year.

Instead, it is the ‘upper mid-market’ which seems to have suffered the most. 2008 as a whole saw 27 deals valued between USD250m and USD500m – compared to just seven so far this year, a drop of 74 per cent. For the first half of 2008 Latin America saw 13 deals announced in this value range.

While this trend is true for most of the region, Mexico has suffered from the opposite. During the first six months of the year the country has seen only two deals valued in excess of USD100m, with not a single deal valued at USD250m or more.

Of the approximately USD29bn worth of Latin American deals during the first half of the year, inbound deals represented 17.7 per cent at just over USD5bn. The majority of these inbound deals came out of Europe, which represents a massive 78 per cent of inbound deal values.

Actual inbound deal activity stood at 61 deals, or approximately 37 per cent of total Latin American deal activity. 55.8 per cent of these deals involved European bidders, while North America represented about 36 per cent of deal flow into Latin America.

Almost a third of all inbound deals focused on targets in the industrials and chemicals sector, yet these deals only represented 2.2 per cent of total values. Energy on the other hand saw 13 deals, or 21.3 per cent of inbound deal activity, but represented more than half of all inbound values. An example was Swiss mining giant Xstrata’s USD2bn acquisition of local rival Glencore International’s Prodeco operations in Colombia.

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