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In a down year for LatAm M&A, bank deals ticked higher in 2019

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In a down year for LatAm M&A, bank deals ticked higher in 2019

Latin America deal activity was lackluster overall in 2019, though the banking industry managed to rise from prior-year levels, data compiled by S&P Global Market Intelligence shows.

Across all industries, deal activity in the region slipped 6.0% year over year as economic and political uncertainty gripped a number of key economies. Despite this, Latin America recorded 21 bank deals, up from 15 in the prior year.

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Many of those bank transactions occurred in Brazil, where fiscal reforms, favorable GDP growth trends and an "attractive exchange rate for foreign investment" added up to "real positive movement," Venus Kennedy, an M&A partner with Deloitte, said in an interview. "We are seeing a lot of people buying."

Brazil was one of just two major economies in Latin America that saw overall M&A activity rise from a year earlier, with all-industry deals ticking to 699 from 658. The other was Colombia, where the number of deals rose to 131 from 101.

Despite the increase in the number of deals, the value of most transactions was on the smaller side. Of the 13 bank deals in 2019 with disclosed deal values, only one hit above $500 million.

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In Brazil, 2019's top deals included Bosan Participações S.A.'s $417.8 million sale of Brazilian Banco Olé Bonsucesso Consignado SA to Aymoré Crédito, Banco do Brasil SA's purchase of Banco BV's loan portfolio for $360.2 million, and Japanese conglomerate SoftBank Group Corp.'s buy-in at Brazilian digital bank Banco Inter SA.

"In highly regulated industries like banking, it is generally easier to enter a market through acquisition than through greenfield [investments], just because of how hard it is to get a license," Kennedy noted.

Colombia also saw higher M&A activity compared to the prior year. Notable deals in the banking space were the sale of International Finance Corporation Ltd.'s minority interest in Banco Davivienda SA to Grupo Bolivar SAC and others for $143.5 million, Credicorp Holding Colombia SAS' $76 million acquisition of a 77.46% stake in microfinance bank Bancompartir SA, and Itaú CorpBanca's purchase of a 20.82% stake of its Itaú CorpBanca Colombia SA unit for $334 million.

In Central America, the biggest disclosed deal was the $730 million sale of Multi Financial Group Inc. to Banco de Bogotá SA's Leasing Bogotá SA Panamá, followed by Banco Panamá SA's $210.0 million sale to Banco Aliado SA. In the Caribbean, many of the deals were driven by a decision from Canadian banks to withdraw from their decades-long positions after reassessing their exposure amid higher perceived risks in the region.

"2019 was the year of uncertainty ... The big deals had kind of been done, so we saw smaller deals — more, but smaller — and for strategic reasons," Deloitte's Kennedy said. "There was too much uncertainty to do big deals, so people focused on acquiring specific tech. We saw lots of financial services companies buying small fintechs," Kennedy said.

Part of several banks' strategies related to the growing presence of financial technology in Latin America. There were 18 recorded deals in which Latin American financial institutions, mostly Brazilian, acquired IT companies in the region. These include Itaú Unibanco Holding SA's $143.01 million investment in Zup I.T. Serviços em Tecnologia e Inovação Ltda., as well as B3 SA - Brasil Bolsa Balcão's 40.01% purchase of Portal de Documentos SA.

Moving into 2020, experts expect to see more of this, along with stronger deal activity overall.

"2020 will continue to be an attractive year for investments in the [Latin America] financial sector," Marcela Chacon, a spokeswoman with consultancy Transactional Track Record, told Market Intelligence. She expects Brazil to again lead the pack in deal activity, "due to the positive outlook and excess liquidity for venture capital in this strategic regional area."

Deloitte's Kennedy, meanwhile, expects markets to become more attractive as uncertainty wanes in 2020, resulting in "an uptick in large deals [and] a continuation of strategic ones."