A corridor of opportunity: deal flow between Mexico and Spain

Despite macroeconomic headwinds, cross-border transaction flow between Spain and Mexico has continued to deliver opportunities for investors and dealmakers

In a difficult M&A market, deal flow between Mexico and Spain has continued to deliver opportunities for dealmakers in both jurisdictions.

Both markets have faced challenges over the past 12 months, with rising interest rates in the US and Europe stifling risk appetite and, in both jurisdictions, increasing capital costs.

In Spain, aggregate M&A deal value fell by 24.6% year-on-year to US$41.4 billion in 2023—the lowest level in 18 years, according to Mergermarket. In Mexico, M&A activity also dropped, by almost half from US$16.5 billion in 2022 to US$8.8 billion in 2023.

Strong connections

The historical, cultural and language ties the two countries share have ensured that the deal corridor between Mexico and Spain has remained resilient even during political and macroeconomic disruption.

Dealmakers in Mexico and Spain value the diversification that the other market offers, with strong ties across the banking, infrastructure, energy, agribusiness, real estate and travel and leisure sectors keeping the two countries strongly aligned.

Spain accounted for almost 14% of foreign direct investment (FDI) into Mexico, making it the second biggest cross-border investor in the country, trailing only the US, according to the United Nations Conference on Trade and Development’s 2023 World Investment Report.

Relatively robust GDP growth in Mexico—with an average GDP expansion of 2.18% annually between 1994-2023, whereas Spain saw an average annual GDP growth of 1.99% between 1996-2023—has underpinned long-term Spanish investor interest in the market. Recently, this interest has been supercharged by a trend toward “friendshoring” in which governments and businesses concentrate supply chains and key commercial relationships in countries with which they have historically strong relationships.

As a neighbor of the US, the world’s largest economy, Mexico is expected to derive long-term economic benefit from “friendshoring” and “nearshoring,” according to ratings agency Fitch. Spanish investors have taken note, with Mexico now serving as a crucial, strategic staging post for Spanish groups with ambitions to grow in the US market.

Commercial ties continue through political cycles

Spanish investment in Mexico does not come without challenges. In recent years, the Mexican administration has restricted commercial investment from Spain in favor of domestic investment from local businesses and institutions.

Programs to nationalize certain industries, most notably the energy sector, have also led to a degree of investor caution. For example, in April 2023, Spanish utility group Iberdrola exited the bulk of its Mexican power assets in a US$6 billion sale to a fund run by state-backed Mexico Infrastructure Partners as part of the administration’s drive to increase the proportion of power generation managed by the state.

This transaction, however, is seen as an outlier, and Spanish groups have remained major stakeholders in road and infrastructure operations.

For instance, Spanish infrastructure and energy company Acciona continues to play a key part in Mexico’s energy and water management sectors and has played an influential role in developing the clean energy sector, securing deals to supply companies with renewable energy. Moreover, Madrid-based airport operator Aena is involved in the operations of 12 airports in Mexico. And in the financial services sector, Spanish banks BBVA and Santander are the largest and third-largest banks, respectively, in Mexico, according to Statista.

Commercial ties between Spain and Mexico have sustained throughout various political cycles, as Spanish investors are attuned to Mexican government policies and changes in administration. Following the Mexican general election in June of this year, there is hope that the policy toward cross-border investment will moderate.

Mature Spanish market captivates Mexican capital

When it comes to outbound investment from Mexico into Spain, the outlook for 2024 is positive, as Mexican businesses and high-net-worth individuals see opportunities to expand their portfolios in the mature Spanish market.

Strong ties between the two countries have made Spain a natural choice for expanding internationally and diversifying into Europe. According to the Spanish Chamber of Commerce in Mexico (Camescom), more than 500 Mexican companies have set up businesses in Spain, investing more than €30 billion in total.

Mexican investors have deployed capital across a range of sectors in the Spanish economy, with real estate and hotels among the most attractive areas. According to Bloomberg, citing the Madrid government’s FDI data, Mexican investors have deployed more than €700 million in Spain’s real estate and construction sectors since 2020. Interest in real estate and business opportunities has accelerated since the pandemic and Mexican investors have funded new property developments in affluent neighborhoods. Similar trends can be seen in the hotel space, with Mexican real estate operator RLH Properties having built up its presence in Spain to strengthen its position as a global player in the luxury property segment.

Other industries in Spain have also enjoyed robust inbound interest from Mexico. For example, Mexican ceramics company Grupo Lamosa announced the acquisition of Spanish counterpart Baldocer in a deal that could be worth up to €425 million. For Lamosa, the deal establishes its position in Europe and opens up opportunities for growth and diversification in the region.

As interest rates on both sides of the Atlantic stabilize and businesses and investors turn their attention back to growth, the Spanish-Mexican corridor, which has proven resilient through the macroeconomic uncertainty of the past two years, is well positioned to grow even stronger.

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