COLOMBIA Trends and Developments Contributed by: Jaime Trujillo, Juan David Velasco, Natalia Ponce de León and Angelica Navarro, Baker McKenzie S.A.S.
The eagerly awaited economic revival of Brazil, traditionally a powerhouse in deal making for the entire region, is progressing at a slower rate than anticipated. Meanwhile, Mexico, which is per - forming well, is understandably concentrating on capitalising on its proximity to the United States and benefiting from trends such as nearshor - ing, rather than considering investments further south. Trends and Developments in M&A and Corporate Regional scale targets In recent years, there has been a noticeable shift in M&A transactions towards targets with regional, multi-jurisdictional operations. Inves - tors are looking for companies that offer regional scale and have a presence beyond Colombia. This trend is particularly evident in sectors such as energy, telecommunications and healthcare, where companies have successfully expanded their operations into the Andean region and Cen - tral America. Colombian companies with a proven track record of regional expansion are particularly attractive to investors. These companies pro - vide an opportunity to gain a foothold in mul - tiple markets and leverage regional synergies. The focus on regional scale reflects a broader strategic shift among investors, who are seeking to diversify their portfolios and mitigate country- specific risks by investing in companies with a broader geographic reach. Dominance of strategic investors Strategic investors have been at the forefront of M&A activity in Colombia and the broader Latin American region. These investors are typically more resilient to short-term market fluctuations and economic instability because they have a long-term investment horizon. Unlike financial
investors, who may be more sensitive to short- term economic changes and volatility, strategic investors are focused on the bigger picture and their long-term strategic goals. One significant advantage that strategic inves - tors have is access to cheaper financing. Many of these investors have substantial cash reserves and can secure financing at preferential rates, making it easier for them to pursue and close deals even in challenging economic conditions. However, the dominance of strategic investors in the M&A market has also led to increased antitrust scrutiny. Regulators are more vigilant about potential anti-competitive effects, which can prolong the deal-making process and lead to more frequent use of carve-outs to address regulatory concerns. Pre-organisation carve-outs Carve-outs have become a prevalent trend in the Colombian M&A market. Companies are increasingly engaging in pre-sale reorganisa - tions to create portfolios that are easier to sell, more attractive to investors and subject to less regulatory scrutiny. By isolating specific busi - ness lines or assets, sellers can unlock hidden value by excluding underperforming units from transactions and can focus on high-growth seg - ments. Carve-outs allow sellers to highlight and capital - ise on high-performing parts of their business, making them more appealing to potential buy - ers. By separating out specific business units or assets, companies can set competitive prices for these parts, enhancing their attractiveness and facilitating smoother transactions. Earn-outs and deferred payments The economic instability and higher costs of capital have made it challenging to accurately
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