“Tequila Crisis” to “Mango Madness” Stephen Leahy Doug Salmon Brad Taylor Jason Zeman
Jan 03, 2016
“Tequila Crisis” to “Mango Madness”
Stephen Leahy
Doug Salmon
Brad Taylor
Jason Zeman
Presentation Roadmap
• M&A Overview: 4 periods– 1980’s through early 1990’s
– Early 1990’s – 1st Half 1998
– 2nd Half 1998 – 1999
– 2000 - Present
• Aggregate deal values by target country/industry• Telecom example• Country focus
Latin America M&A Overview• 1980’s through 1994: Limited Deal flow
- Debt Crisis / Hyperinflation / Political Instability• Late 1994 – 1st Half 1998: M&A Deals Exploded
- Government Privatizations- Fiscal Stability Increased (Real Plan/Convertibility Plan/Mexican
Reform Package)• 2nd Half 1998 – End of 1999: Deal flow Slowed
- Internal Instability (Argentina)- Emerging Market Crises (Russia/Brazilian Devaluation)- Controversial Elections (Argentina/Chile/Mexico)- Legislative Transformation (Venezuela)- Privatizations: 1998-$39.6bn; 1999-$8.1bn
Latin America Announced M&A Deal Value
$20,134.0
$35,455.0
$72,890.0
$86,129.0
$68,979.0
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
$70,000.0
$80,000.0
$90,000.0
$100,000.0
1995 1996 1997 1998 1999
Vol
ume
($m
ils)
CY1995 to CY1999
Latin America M&A Volume Growth
0%
100%
200%
300%
400%
500%
600%
1995 1996 1997 1998 1999
% G
row
th (Y
oY)
Worldwide Latin America
CY1995 to CY1999
M&A Overview (Con’t)
• 2000 – Present: Buying Spree• Record Pace in 1st Half 2000
– $ 56 Billion in announced deals (33% increase y/y)
• Telecommunications and Banking Sectors Lead– Spain’s Telefonica announced $ 23 billion in 5 deals
– Mexico’s banks are being bought by Spanish and US companies
Latin America Announced M&A by Target Nation
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
$70,000.0
1995 1996 1997 1998 1999 1H00 2000E
Volu
me
($m
ils)
Argentina
Brazil
Mexico
Chile
Peru
Latin America Industry Rank Values in 1H00 ($mils)
Target Industry Rank Value # of DealsTelecommunications $24,760.3 41
Electric, Water, Gas (Utilities) $7,741.9 43
Commercial Banking $5,711.3 21
Investment & Commodity Firms $5,619.3 27
Radio/Television Broadcasting $2,308.2 13
Food and Kindred Products $1,508.4 29
Oil & Gas: Petroleum Refining $1,503.8 16
Business Services $1,323.5 67
Mining $1,319.9 17
Metal & Metal Products $1,231.6 11
Telecom Investment in L.A.
• Source of Capital, Technology, and Jobs
• FMN obtain access to large mkts, low cost labor, and tariff circumvention
0
5
10
15
20
25
30
35
Tel Util
Value
# ofDeals
0
10
20
30
40
50
60
70
80
Basic Leased Mobile ISPs
CompetitionMonopoly
Telecom Services: Level of Competition in Americas
Mexico M&A Environment
• 1988 Salina Liberal Administration
• 1993 Foreign Investment Law
• 1994 NAFTA
• 1994 FIL Amendments
• 1998 Bank Ownership Restrictions Lifted
• 1H to 2H 90s - 27B to 54B FDI
• US FDI Increase to 12.5B for 2000
Mexico - M&A and the Bolsa
$-$2,000.0$4,000.0$6,000.0$8,000.0
$10,000.0$12,000.0$14,000.0$16,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
01000200030004000
5000600070008000
Bo
lsa Deal Flow
Bolsa
Mexico - M&A and Brady Bond Rates
$-$2,000.0$4,000.0$6,000.0$8,000.0
$10,000.0$12,000.0$14,000.0$16,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
02468
10121416
Bra
dy
Ra
tes
Deal Flow
Brady Rate
Mexico - M&A and Foreign Exchange Rate
$-$2,000.0$4,000.0$6,000.0$8,000.0
$10,000.0$12,000.0$14,000.0$16,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
7
7.5
8
8.5
9
9.5
10
FX
Ra
te Deal Flow
FX Rate
Mexico Guiding Principles
• Sustainable Economic Growth
• Job Creation• Competitive in
Product Sectors• FDI Friendly
• 1998-2000 - GDP 3.5 to 5%
• 1999 - Lowest Open Unemployment since 1985
• 2H90 Strong Increase
Argentine M&A Environment: The Past
• Austral Plan in 1985• Convertibility Plan in 1991
- Austerity program under Menem- Pegged currency- 51 firms privatized 1990 – 1992 for $14bn- Inflation decreased from 3,000%+ to .01% in 1996
• Q397: Merval exceeded 800• July 1998: Recession has gripped Argentina• 11/00: Merval sank to under 400
Argentina - M&A and the Merval
$-
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
100
200
300
400
500
600
700
800
Me
rva
l
Deal Flow
Merval
Argentina - M&A and Brady Bond Rates
$-
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
2
4
6
8
10
12
14
16
18
Bra
dy
Ra
tes
Deal Flow
Brady Rate
Argentina - M&A and Foreign Exchange Rate
$-
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
1995 1996 1997 1998 1999
Vo
lum
e
00.20.40.60.811.21.41.61.82
FX
Ra
te Deal Flow
FX Rate
Argentine M&A Environment: The Present & Future
• Sovereign bond spreads hit +867 bps in Q400• 12/00: Announced “el bindaje” with $14bn from
IMF• Privatization of remaining 21 public firms• Fiscal austerity required to meet -$4.7bn fiscal target• Merval up 28% in 1/01, but plunged in 2/01• Industrial production 4.2% in 1/01• Consumer spending 1.8%. Confidence = 20.7• Largely dependent on US/Europe/Japan
Brazilian M&A Environment: The Past
• July 1994 – Finance Minister Cardoso launches the Real Plan– Goals: slow inflation, reduce fiscal deficits, open
economy, privatize– Pegged to USD, inflation adjusted wages, tight policies
• Problems: FX rate valuation & Fiscal Deficit– Crawling peg became overvalued by 1998– Congress would not pass fiscal reforms (Soc. Security)
• By Jan ’99, int. rates shot up to attract foreign capital, couldn’t hold up. Devaluation Jan 15, 1999.
Brazil - M&A and the Bovespa
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
020004000600080001000012000140001600018000
Bo
vesp
a
Deal Flow
Bovespa
Brazil - M&A and Brady Bond Rates
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
5
10
15
20
Bra
dy
Ra
tes
Deal Flow
Brady Rate
Brazil - M&A and Foreign Exchange Rate
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
0.5
1
1.5
2
FX
Ra
tes
Deal Flow
FX Rate
Brazilian M&A Environment:Present and Future
• Brazil recovered from January 1999 devaluation rapidly
• Cardoso remains President until 2002 elections– Recently split Congress is bonding with Cardoso
– Attempting to pass fiscal reforms to meet IMF requirements
• BRL is still inexpensive. Foreign companies looking to purchase Brazilian assets
• Brazil’s exporters & growth industries are attractive – Pulp & paper, Telecommunications, Banking
– Privatizations
Conclusion
• Macroeconomic factors had mixed correlation results
• Emerging markets are viewed as one entity• Merger & Acquisitions in LatAm will
increase in Telecom, Banking, and Utilities over the Long-Term
• Rosy outlook predicated on robust US economy
Q & A
Share of Regional Internet Mkt
Brazil
Mexico
Argentina
Venezuela
Chile
Columbia
Rof L.A.
0%5%
10%15%20%25%30%35%
Bra
zil
Mex
ico
Arg
entin
a
Ch
ile
Countries
Internet Penetration in U/M Class, 1999
Series1
Argentina: Network Equipt Suppliers
Siemens
Nortel
Alcatel
Lucent
NEC
Other
Siemens
Nortel
Alcatel
Lucent
NEC
Other
Telecom Future Investment
Local representation is essential
Options:
Local Office
Partnering
Use of agents or distributors
Latin America Announced M&A by Target Nation
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vol
ume
($m
ils)
Argentina
Brazil
Mexico
Chile
Peru
CY1995 to CY1999
Top-10 Advisors
Advisor Rank Value # Deals
Morgan Stanley Dean Witter $4,309.2 8
Merrill Lynch $4,020.5 6
JP Morgan $3,914.6 18
Salomon Smith Barney $2,993.4 8
Chase Manhattan $2,946.8 6
Credit Suisse First Boston $2,465.5 9
Boavista Inter-Atlantico $2,307.9 4
Banco Brascan SA $1,818.9 4
Lehman Brothers $1,618.8 3
Banco Espirito Santo $1,551.4 3
Maxima Consultoria $1,311.0 3