The Strategic Use of Financing in Mergers and Acquisitions

To increase returns in a merger and acquisition transaction, some buyers use debt as a leverage source. Despite the benefit of increasing potential returns for the buyer, it also increases solvency risks. Many buyers, therefore, prefer to use their own resources when making an acquisition.

2020 was a challenging year for the use of debt in international mergers and acquisitions. Restrictive monetary policies and rising interest rates reduced the potential expected returns in leveraged transactions, and there was also a significant increase in appetite for government bonds with lower risks. Liquidity in the debt markets contracted. In early 2023, the bankruptcies of banking institutions in the United States and Europe contributed to this trend.

In Mexico, the use of financing for mergers and acquisitions has faced historical challenges. Traditional financial entities rarely grant specialized financing, and it is more common to raise credits that are allocated to this activity. In recent years, private debt and mezzanine funds have multiplied, reducing the gap in obtaining specialized financing. This has allowed multiple buyers to structure transactions with more options for raising capital.

Rodrigo Fentón, professor affiliated with the CIE of EGADE Business School and director of the Undergraduate Degree Program of Finance at Tecnológico de Monterrey

Key Deals

APR 2023

• Iberdrola México sold 13 electricity generation plants to Mexico Infrastructure Partners for US$6.0 B / Buyer:
  Mexico Infrastructure Partners, independent administrator of financial vehicles / Target: 13 electricity generation plants / Seller: Iberdrola México, a company dedicated to the production, distribution, and commercialization of energy
• Kavak announced the acquisition of Opi Analytics / Buyer: Kavak, operates a platform to search, buy and sell used cars / Target: Opi Analytics, develops machine-learning solutions
• Flo Networks announced the acquisition of American Tower Corporation for US$300 M / Buyer: Flo Network, offers telecommunication services / Target: American Tower Corporation, offers wireless infrastructure

MAY 2023

• Grupo Carso, S.A.B. de C.V. closed the acquisition of a Talos Energy Mexico Subsidiary for US$124.8 M / Buyer:
  Grupo Carso, operates in the commercial, industrial, infrastructure, construction, and energy sector / Target: Talos Energy Mexico Subsidiary / Seller: Talos Energy, operates in the oil exploitation and production sector
• Royal Resorts sold Four Resorts in Mexico to Holiday Inn Club Vacations / Buyer: Holiday Inn Club Vacations, hotel group / Target: Four resorts in Mexico / Seller: Royal Resorts, hotel group
• Holcim Ltd announced the acquisition of Impermeabilizantes PASA / Buyer: Holcim, manufactures construction products / Target: Impermeabilizantes PASA, manufactures waterproofing, additives, and coatings

JUN 2023

• Resonac Corporation closed the acquisition of AMI Automation / Buyer: Resonac Corporation, produces chemical products / Target: AMI Automation, provides automation, control, and optimization solutions to a diverse range of industries
• Amlan International closed the acquisition of Agromex Importaciones, S.A. de C.V. / Buyer: Amlan International, produces food supplements that support optimal intestinal health in animals / Target: Agromex Importaciones, produces plastic films for the agri-food industry in Mexico

The author of this report is Sergio Garcia del Bosque, Managing Director of Seale Associates (sgarcia@sealeassociates.com).

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