“tequila crisis” to “mango madness” stephen leahy doug salmon brad taylor jason zeman
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“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
Latin America Announced M&A Deal Value
$20,134.0
$35,455.0
$72,890.0
$86,129.0
$68,979.0
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
$70,000.0
$80,000.0
$90,000.0
$100,000.0
1995 1996 1997 1998 1999
Vol
ume
($m
ils)
CY1995 to CY1999
Latin America M&A Volume Growth
0%
100%
200%
300%
400%
500%
600%
1995 1996 1997 1998 1999
% G
row
th (Y
oY)
Worldwide Latin America
CY1995 to CY1999
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
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
$70,000.0
1995 1996 1997 1998 1999 1H00 2000E
Volu
me
($m
ils)
Argentina
Brazil
Mexico
Chile
Peru
Latin America Industry Rank Values in 1H00 ($mils)
Target Industry Rank Value # of DealsTelecommunications $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.
• Source of Capital, Technology, and Jobs
• FMN obtain access to large mkts, low cost labor, and tariff circumvention
0
5
10
15
20
25
30
35
Tel Util
Value
# ofDeals
0
10
20
30
40
50
60
70
80
Basic Leased Mobile ISPs
CompetitionMonopoly
Telecom Services: Level of Competition in Americas
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
Mexico - M&A and the Bolsa
$-$2,000.0$4,000.0$6,000.0$8,000.0
$10,000.0$12,000.0$14,000.0$16,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
01000200030004000
5000600070008000
Bo
lsa Deal Flow
Bolsa
Mexico - M&A and Brady Bond Rates
$-$2,000.0$4,000.0$6,000.0$8,000.0
$10,000.0$12,000.0$14,000.0$16,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
02468
10121416
Bra
dy
Ra
tes
Deal Flow
Brady Rate
Mexico - M&A and Foreign Exchange Rate
$-$2,000.0$4,000.0$6,000.0$8,000.0
$10,000.0$12,000.0$14,000.0$16,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
7
7.5
8
8.5
9
9.5
10
FX
Ra
te 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
$-
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
100
200
300
400
500
600
700
800
Me
rva
l
Deal Flow
Merval
Argentina - M&A and Brady Bond Rates
$-
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
2
4
6
8
10
12
14
16
18
Bra
dy
Ra
tes
Deal Flow
Brady Rate
Argentina - M&A and Foreign Exchange Rate
$-
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
$30,000.0
1995 1996 1997 1998 1999
Vo
lum
e
00.20.40.60.811.21.41.61.82
FX
Ra
te 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.
Brazil - M&A and the Bovespa
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
020004000600080001000012000140001600018000
Bo
vesp
a
Deal Flow
Bovespa
Brazil - M&A and Brady Bond Rates
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
5
10
15
20
Bra
dy
Ra
tes
Deal Flow
Brady Rate
Brazil - M&A and Foreign Exchange Rate
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vo
lum
e (
mil
lio
ns)
0
0.5
1
1.5
2
FX
Ra
tes
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.
0%5%
10%15%20%25%30%35%
Bra
zil
Mex
ico
Arg
entin
a
Ch
ile
Countries
Internet Penetration in U/M Class, 1999
Series1
Argentina: Network Equipt Suppliers
Siemens
Nortel
Alcatel
Lucent
NEC
Other
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
$-
$10,000.0
$20,000.0
$30,000.0
$40,000.0
$50,000.0
$60,000.0
1995 1996 1997 1998 1999
Vol
ume
($m
ils)
Argentina
Brazil
Mexico
Chile
Peru
CY1995 to CY1999
Top-10 Advisors
Advisor Rank Value # Deals
Morgan Stanley Dean Witter $4,309.2 8
Merrill Lynch $4,020.5 6
JP Morgan $3,914.6 18
Salomon Smith Barney $2,993.4 8
Chase Manhattan $2,946.8 6
Credit Suisse First Boston $2,465.5 9
Boavista Inter-Atlantico $2,307.9 4
Banco Brascan SA $1,818.9 4
Lehman Brothers $1,618.8 3
Banco Espirito Santo $1,551.4 3
Maxima Consultoria $1,311.0 3