Argentina loses appeal for investments and mergers and acquisitions decline

Argentina has become an attractive destination for hydrocarbon exploration, mining, and renewable energies, generating enthusiasm in the business sector. Despite the possibility of a political change in an election year, the market for mergers and corporate acquisitions does not reflect this optimistic view, according to a report by Bloomberg Línea.

During the first quarter of this year, almost the same number of transactions were carried out as in the same period last year (23 versus 22), but with a significantly lower value: $400 million compared to $1.7 billion.

According to executives from 400 companies from 14 countries that participated in these transactions, Argentina has recently ranked eighth among the most attractive countries for investment.

You may also be interested in reading: What is the situation of small venture capital firms in a more conservative market?

Juan Benjamín Tripier Lorio, Senior Manager of the Deals practice at PwC Argentina, noted in a report highlighting first-quarter mergers and acquisitions that «higher levels of economic and political volatility have a negative impact on investment flows.» As a result, investment decisions are delayed, and price expectations between buyers and sellers diverge.

The PwC report also reveals that foreign buyers participated in nearly 75% of the quarter’s transactions, contrasting with the usual trend of local buyers being more active during periods of crisis and/or economic and political uncertainty.

Although some companies have decided to withdraw their operations in the country, there is a marked slowdown compared to previous years. During the first three months of 2023, at least 3 transactions were recorded in which multinational companies sold part or all of their operations in Argentina, compared to 17 transactions throughout 2022 and 19 throughout 2021.

https://www.facebook.com/BloombergLinea/posts/586752226896517?ref=embed_post

What implications does this panorama have for Latin American venture capital firms?

• Decreased investment opportunities: The slowdown in the mergers and acquisitions market in Argentina can result in a decrease in investment opportunities for Latin American venture capital firms seeking to invest in the country.
• Increased competition from foreign buyers: With the predominant participation of foreign buyers in the quarter’s transactions, Latin American venture capital firms may face greater competition when investing in Argentinean companies, making it challenging to secure favorable deals.
• Heightened caution and risk aversion: The mentioned economic and political volatility in the report can make Latin American venture capital firms more cautious and hesitant to take risks in Argentina, leading to a decrease in investment in the country and a greater preference for more stable markets.

What are the implications of this landscape for Latin American startups?

• Limited investment opportunities: The mergers and acquisitions market in Argentina reflects a slowdown and a climate of increased economic and political volatility. This can restrict investment opportunities for Latin American startups seeking to attract external capital.
• Uncertainty in the business environment: The lack of political and economic clarity can generate uncertainty in the business environment, which can affect investment decision-making and strategic planning for Latin American startups.
• Dependency on foreign investors: The report mentions that foreign buyers have participated in the majority of transactions in Argentina. This can imply a greater dependence on foreign investors for the growth and development of Latin American startups, which can have implications on the autonomy and direction of the companies.

To read the information in detail, visit: Bloomberg Línea