Latin America was a hotbed of alliance and merger & acquisition activity through the 1990s. Non-Latin multinational ownership in the top 500 Latin American companies grew from 25% of sales in 1991 to 38% in 1999, as global MNCs pursued alliances and aggressively acquired privately-held local companies and state-owned enterprises. Locally, the pressure continues to be intense on Latin American firms to consolidate and to seek the best possible alliance partners as an integral component of their growth strategies.
|“In the last two years, the pace of foreign MNC activity has slowed in line with the cooling of the stock market. But consolidations of local players is accelerating.”|
In the last two years, the pace of foreign MNC M&A activity has slowed in line with the cooling of the stock market. But local activity, mostly domestic consolidations, is accelerating. For the next decade, alliances and acquisitions will continue to be a critical facet of competitive strategy for Latin America, making it imperative for companies to devote more time and talent to shepherding these relationships every step of the way so that they have every possible chance to succeed.
These conclusions are based on wide-ranging interviews with consultants at Booz Allen Hamilton, the McLean, Va.-based management consultancy, and faculty members at The University of Pennsylvania’s Wharton School, as well as a review of studies by experts at Wharton and Booz Allen.
The Local View
“There have been so many acquisitions done by multinationals that the largest companies in Latin America have gone from being predominantly local to being multinational,” says Alonso Martinez, a senior vice president of Booz Allen who is based in Coral Gables, Fla., and consults throughout Latin America. “At the beginning of the 1990s, maybe 25% of the largest companies in Latin America were multinational; now it’s approaching 50%.
Many of these companies are home-grown Latin American multinationals that have expanded through cross-border deals to achieve the size and scale to compete in the region with global players. “What has happened is most Latin American companies are facing bigger and more entrenched multinational competitors. That has put them at a disadvantage. For example, a confectionery company in Latin America might be sizeable for its home country, but it is competing with Nestle and Philip Morris, which in Latin America alone are multi-billion-dollar companies. So Latin American companies are under a lot more pressure to become at least regional multinationals,” says Martinez.
Local companies are not just grabbing market share. They recognize specific strategic advantages in alliances and acquisitions. “The [local] clients that we talk to are worried about creating value. Latin American economies grew a lot throughout the 1990s, but little from 1998 on. Suddenly growth is not the way to create value. You create value today by synergies. The second thing they think about is whether an alliance will make their company more interesting for international investors and whether this will provide liquidity.” Access to international markets for IPOs is increasingly expensive for companies focused on a single country, says Martinez. “A lot of Latin American stockholders would like to have international liquidity. One way to get that is to have your stock traded somewhere.”