M&A in Latam & Commodity Prices
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Wanted to leave an interesting finding with regards to commodity prices and the volume of M&A transactions. I analyzed the total M&A transaction volume of Brazil, Mexico, Chile and Argentina from 1988 and the commodity prices for the main commodities in these countries. Interesting enough there is a high correlation between the prices and transaction volumes but not for all countries, Argentina is the outlier. Brazil, Chile and Mexico have a positive correlation, while Argentina is the complete opposite. This economic indicator shows one part of the equation. In the case of Argentina, policy is the key factor. Constant government changes are key to understand this behavior. Political risk overwhelms all economic fundamentals.
Brazil Chile Mexico Argentina
Crude oil, Brent 0.76 0.75 0.73 0.14
LNG 0.75 0.72 0.69 0.09
Aluminum 0.15 0.01 0.01 -0.13
Iron ore, cfr spot 0.81 0.72 0.71 0.17
Copper 0.75 0.64 0.64 0.00
Lead 0.84 0.73 0.72 0.09
Tin 0.75 0.64 0.58 0.01
Nickel 0.48 0.37 0.42 -0.02
Zinc 0.58 0.36 0.47 -0.02
Gold 0.69 0.57 0.51 0.17
Silver 0.76 0.75 0.65 0.11
Soybeans 0.69 0.63 0.54 -0.03
Maize 0.67 0.67 0.56 0.06We should take into account that I could not find specific M&A transactions for the mining industry.
I’m interested in taking a deeper dive into crude oil transactions because, at least in the previous decade, M&A activity in Brazil’s oil and gas sector was largely driven by Petrobras’ divestment program, which occurred over a short period. Even at the beginning of the century, Brazil had already become a free market for oil and gas operators following the opening of the exploration and production market in 1998. Back then, M&A transactions were likely more influenced by Petrobras and regulatory agendas than by Brent crude prices. However, that was in the past, today the market is well-established and includes a broader range of companies.
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