Transcript Latin America: M&A Volume Growth CY1995 – CY1999

“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-$8.1bn
Volume ($mils)
Latin America Announced M&A Deal Value
$100,000.0
$90,000.0
$80,000.0
$70,000.0
$60,000.0
$50,000.0
$40,000.0
$30,000.0
$20,000.0
$10,000.0
$-
$86,129.0
$72,890.0
$68,979.0
$35,455.0
$20,134.0
1995
1996
1997
CY1995 to CY1999
1998
1999
Latin America M&A Volume Growth
% Growth (YoY)
600%
500%
400%
300%
200%
100%
0%
1995
1996
1997
Worldwide
1998
Latin America
CY1995 to CY1999
1999
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
$70,000.0
Volume ($mils)
$60,000.0
Argentina
$50,000.0
Brazil
$40,000.0
Mexico
$30,000.0
Chile
$20,000.0
Peru
$10,000.0
$1995
1996
1997
1998
1999
1H00 2000E
Latin America Industry Rank Values in 1H00 ($mils)
Target Industry
Rank Value # of Deals
Telecommunications
$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.
35
• Source of Capital, 30
Technology, and Jobs25
• FMN obtain access 20
to large mkts, low
15
cost labor, and tariff
10
circumvention
Value
# of
Deals
5
0
Tel
Util
Telecom Services: Level of Competition in Americas
80
70
60
50
Competition
Monopoly
40
30
20
10
0
Basic
Leased
Mobile
ISPs
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
$16,000.0
$14,000.0
$12,000.0
$10,000.0
$8,000.0
$6,000.0
$4,000.0
$2,000.0
$-
8000
7000
6000
5000
4000
3000
2000
1000
0
1995 1996 1997 1998 1999
Bolsa
Volume (millions)
Mexico - M&A and the Bolsa
Deal Flow
Bolsa
$16,000.0
$14,000.0
$12,000.0
$10,000.0
$8,000.0
$6,000.0
$4,000.0
$2,000.0
$-
16
14
12
10
8
6
4
2
0
1995 1996 1997 1998 1999
Brady Rates
Volume (millions)
Mexico - M&A and Brady Bond Rates
Deal Flow
Brady Rate
$16,000.0
$14,000.0
$12,000.0
$10,000.0
$8,000.0
$6,000.0
$4,000.0
$2,000.0
$-
10
9.5
9
8.5
8
7.5
7
1995 1996 1997 1998 1999
FX Rate
Volume (millions)
Mexico - M&A and Foreign Exchange Rate
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
800
700
$25,000.0
600
$20,000.0
500
$15,000.0
400
300
$10,000.0
200
$5,000.0
100
$-
0
1995 1996 1997 1998 1999
Merval
Volume (millions)
$30,000.0
Deal Flow
Merval
Volume (millions)
$30,000.0
18
16
14
12
10
$25,000.0
$20,000.0
$15,000.0
8
6
4
2
0
$10,000.0
$5,000.0
$1995 1996 1997 1998 1999
Brady Rates
Argentina - M&A and Brady Bond Rates
Deal Flow
Brady Rate
$30,000.0
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Volume
$25,000.0
$20,000.0
$15,000.0
$10,000.0
$5,000.0
$1995 1996 1997 1998 1999
FX Rate
Argentina - M&A and Foreign Exchange Rate
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.
Volume (millions)
$60,000.0
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
$50,000.0
$40,000.0
$30,000.0
$20,000.0
$10,000.0
$1995 1996 1997 1998 1999
Bovespa
Brazil - M&A and the Bovespa
Deal Flow
Bovespa
Brazil - M&A and Brady Bond Rates
20
$50,000.0
15
$40,000.0
$30,000.0
10
$20,000.0
5
$10,000.0
$-
0
1995 1996 1997 1998 1999
Brady Rates
Volume (millions)
$60,000.0
Deal Flow
Brady Rate
Brazil - M&A and Foreign Exchange Rate
2
$50,000.0
1.5
$40,000.0
$30,000.0
1
$20,000.0
0.5
$10,000.0
$-
0
1995 1996 1997 1998 1999
FX Rates
Volume (millions)
$60,000.0
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.
Internet Penetration in U/M Class,
1999
Countries
Chile
Argentina
Mexico
Series1
Brazil
35%
30%
25%
20%
15%
10%
5%
0%
Argentina: Network Equipt Suppliers
Other
NEC
Lucent
Siemens
Alcatel
Nortel
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
$60,000.0
Volume ($mils)
$50,000.0
Argentina
$40,000.0
Brazil
$30,000.0
Mexico
Chile
$20,000.0
Peru
$10,000.0
$1995
1996
1997
1998
CY1995 to CY1999
1999
Top-10 Advisors
Advisor
Morgan Stanley Dean Witter
Rank Value
$4,309.2
# Deals
8
Merrill Lynch
JP Morgan
Salomon Smith Barney
Chase Manhattan
$4,020.5
$3,914.6
$2,993.4
$2,946.8
6
18
8
6
Credit Suisse First Boston
Boavista Inter-Atlantico
Banco Brascan SA
$2,465.5
$2,307.9
$1,818.9
9
4
4
Lehman Brothers
Banco Espirito Santo
Maxima Consultoria
$1,618.8
$1,551.4
$1,311.0
3
3
3