Volatile Peso Creates Winners and Losers in Mexico M&A Deals

  • Deals priced in dollars now more expensive in local currency
  • Coke Femsa, Grupo Lala among those with transactions pending

The weak peso is complicating transactions involving Mexican companies, driving up prices in local currency for acquisitions abroad or creating an unforeseen bargain for a foreign buyer, with at least one deal being revalued to adjust for the changes.

When Mexico City-based Coca-Cola Femsa SAB agreed, with partner Coca-Cola Co., to acquire the AdeS soy-based beverage business from London-based Unilever NV for $575 million in June, the deal was valued at 10.6 billion pesos. Now the peso-denominated cost is about 9 percent higher. Like other Mexican public companies, Coke Femsa has at least some hedges for currency risk, but it has to book its holdings in pesos for accounting purposes.

Likewise, Grupo Lala SAB said in May it would buy certain U.S. assets from Laguna Dairy for $246 million. Currency weakness has added more than 10 percent to the peso-denominated price tag for the dairy company. The deal’s dollar price remains unchanged, Alberto Arellano, Lala’s chief financial officer, said in an e-mail.

“These deals are all set in U.S. dollars because they’re mostly U.S. companies,” said Manuel Jimenez, head of analysis at Grupo Financiero Banorte SAB. “It’s likely any operations that are pending will have to take into account currency effects.”

Coca-Cola Femsa didn’t respond to a request for comment. The company had about 25 percent of its dollar needs in Mexico hedged as of October, executives said on a conference call then.

The peso’s 10 percent depreciation against the dollar in the past 12 months -- weighed down by U.S. President Donald Trump’s talk of tariffs on imports -- could also force acquirers of Mexican companies to revalue their transactions. Delta Air Lines Inc. said Monday it had boosted its offer for a stake in Grupo Aeromexico SAB to 53 pesos a share from 43.59 pesos, mainly due to exchange-rate movements.

Common Practice

It’s becoming more common for cross-border transactions to account for currency volatility, with many deals set in dollars or at a fixed exchange rate, said Bernardo Reyes Retana, a lawyer who works on mergers and acquisitions at Gonzalez Calvillo SC in Mexico City.

“Those who don’t do it learn from their mistakes the hard way,” he said.

Despite the currency volatility, mergers and acquisitions involving Mexican companies have remained steady over the past few years. There were 37 deals with Mexican buyers or sellers last year, compared with 41 in 2015 and 39 in 2014, according to data compiled by Bloomberg.

More activity is likely in 2017 as companies adjust to the changing geopolitical landscape. Alfa SAB, one of Mexico’s biggest conglomerates, announced plans this week to shed energy assets in Texas and Peru, giving up on a plan to grow in the industry because of the slump in oil prices over the last few years.