When people talk about M&A, they are referring to “mergers and acquisitions” (M&A). These transactions aim to restructure the ownership and/or operational structure of the companies involved, in order to generate synergies, increase efficiency, expand geographic reach, diversify business operations, or simply increase business volume. 

The history of M&A transactions dates back several decades. It was during the 19th and early 20th centuries that significant industrial consolidations took place in economic sectors that were major players at the time, such as the oil and steel industries, among others. A prime example is the formation of the Standard Oil Company in the United States, which emerged through multiple acquisitions and went on to become one of the largest and most powerful companies of its time worldwide.

In recent decades, the M&A market has experienced significant growth worldwide. Advances in communications, the globalization of markets, and the pursuit of business synergies have driven an increase in the number of mergers and acquisitions. These types of transactions can be driven by various factors, such as the desire to expand inorganically into new markets, gain access to complementary technologies or capabilities, achieve economies of scale, leverage financial synergies, or strengthen a competitive position in a specific sector. 

As for Latin America (Latam), the region has not been immune to these types of transactions; in 2021, transactions of this kind totaled ~USD $130 billion, and ~USD $90 billion by the end of 2022, marking a clear downward correction following a boom in such transactions during the post-pandemic period. At the end of last year, Brazil took the top spot in attracting such investments, followed by Chile and Mexico. As for buyers, the list was led by Brazil, the U.S., and Chile, with the Consumer Goods sector (USD $33 billion) and the Energy and Resources sector (USD $16 billion) standing out. 

For its part, Chile was not immune to the regional trend, as by the end of 2022, transaction volume had declined by 25% year-over-year, with Chilean companies being the leading investors (~36%), followed by the U.S. (~27%) and Australia (~27%). However, as of Q1 2023, there are certain signs of improvement, with a ~8% increase in transaction volume compared to the same period the previous year, driven by foreign capital (Canadian, Brazilian, and German).

However, a study conducted by Deloitte Research among leading M&A executives in Chile revealed that 70% believe asset prices in 2023 will be similar to or higher than those already observed; the same percentage believes that Chile’s economic outlook will improve over the next three years; 50% would maintain their investment strategy in Chile; and, finally, therespondents believe that activity this year and next will be concentrated in the energy and mining sectors. On the other hand, the factors perceived as the greatest investment risks include regulatory reforms, the socioeconomic and political environment, and the global macroeconomic outlook. 

Therefore, while the circumstances mentioned above have put pressure on the M&A market in Chile, it is important to recognize that this slowdown is part of a broader picture and is subject to temporary adjustments and fluctuations; thus, as economic conditions stabilize and short-term challenges are addressed prudently, it is possible that this market will regain its momentum and show positive signs.

Cristián Espinoza

Business Analyst, Fynsa AGF