PI Global Investments
Private Equity

M&A and private equity in LatAm in 2022: Driven by digitalization

The COVID-19 pandemic struck hard in Latin America. At this writing, more than 1.5 million people have died across the region. National economies suffered and continue to suffer. Millions across LatAm found themselves working and living in isolation – remotely.

This sweeping, unprecedented crisis, with its enormous challenges, also birthed a number of opportunities as businesses raced to meet essential needs.

Some economies proved to be more resilient than others in the way they responded to the crisis and even found opportunities to grow. Isolation and remoteness accelerated the need for technology and innovation to adapt to virtual reality.

The pandemic made it clear that technology can be a tool to create innovative solutions that enable and improve an array of online functions: remote work, banking, the retail experience, general telecommunications, and the functionality of supply chains, among many examples. Investors became, and remain, eager to deploy accumulated capital in sectors that saw a steady growth despite the pandemic. In the last two years, tech sector mergers and acquisitions (M&A) and private equity (PE) have seen continuous growth and show no signs of slowing down. Challenges from the pandemic have brought opportunities for companies looking for a competitive advantage, growth, and security via acquisitions.[1]

During 2020 and 2021, Latam witnessed an exponential growth of tech companies, with the number and value of unicorns rising each year (18 new unicorns for 2020, and 26 for 2021).[2] This technology and startup boom was driven by unprecedented investment activity via M&A and PE deals. According to TTR, in 2020 there were 708 completed M&A deals in the technology sector and 1,204 during 2021 – an investment of US$6.1 billion in2020 and U$6.5 billion in 2021.[3] The majority of technology deals during 2021 took place in Brazil (1,062), followed by Mexico (113), Chile (106), and Colombia (77).[4]

Some of the strongest growth has been seen in e-commerce, especially in such categories as restaurants and groceries; logistics, to keep up with the demand created by e-commerce; and fintech, fulfilling the needs of broader financing, digital payments, and payment gateways, among others.[5] In LatAm, investment in startups has grown more quickly than in most other regions, such as Asia Pacific and the United States[6] – and the region’s tech companies still show huge growth potential for the upcoming years.

We are seeing particularly important investment rounds in the fintech sector. In 2020, 40 percent of venture capital investment was on fintech, followed by e-commerce with 12 percent and super apps with 7 percent.[7] Some investment examples are NuBank (US$750 million), Ualá (US$350 million), and dLocal (US$350 million).[8] DLA Piper represented Masivian in its US$50 million sale to Route Mobile, one of the leading providers of cloud communication platform services; advised Advent International in the acquisition of technology consulting services company Sophos Solutions for the banking sector; advised LG Informática in the acquisition of Norber Engenharia (a technology company that develops and provides frequency-control and HR solutions); and advised Vestúa (a retail company) in its series A investment round.

Despite such growth, M&A and PE will face certain challenges for some time. Coming elections in several countries may result in economic volatility. The ongoing pandemic and large-scale issues such as climate change also mean that LatAm will need to adapt and grow more efficient. Technology may help to provide answers to these challenges.

Change may be difficult, especially on a large scale, but success lies in adaptability. Of course, we know some hurdles will be overcome – access to the Internet will continue to improve, as will technology education. Today’s situation represents new opportunities for M&A and PE, as new startups emerge to fill the voids and large companies expand into new business areas and regions.

In our role as advisors, we highlight the special interest of investors in the technology sectors. We foresee technology continuing to grow as a major facilitator driving M&A and PE transactions across LatAm during 2022. When we think of the digitalization process that is embracing Latin America, we have great expectations.

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