Analysis: Latin America companies look abroad for buyouts

By Tomas Sarmiento

MEXICO CITY (Reuters) – Many Latin American companies are seeking buyouts in the developed world, taking advantage of the cheap cash that has flooded local markets and an uncertainty in Europe and the United States that has left the door open to foreign acquisitions.

Carlos Slim, the world’ richest man, wants his telecommunications empire to reach the European market while Argentina’s largest real estate company, IRSA (IRS.BA: Quote, Profile, Research) (IRS.N: Quote, Profile, Research), says it will expand into the United States.

Banorte (GFNORTEO.MX: Quote, Profile, Research), Mexico’s third largest lender, hopes to capture more Spanish-speaking business through a bigger presence in Texas.

Carlos Ponce, a researcher with Mexican brokerage Ixe, said abundant foreign cash and low interest rates left over from the financial crisis have made such expansion more appealing.

“Many companies are beginning to feel that the best way to take advantage of liquidity is through expansion,” he said.

Investors from rich countries have flooded developing economies with cash over the past two years as they seek returns that will outpace yields on local securities.

And while much of that money goes to work in Latin America, a share of that investor cash turns right back toward the United States and Europe, where it is used for buyouts.

“The cycle of one-way investments is over. Latin America benefited a lot and Spain even more. But now the tide has turned and Latin American investments in Spain and Portugal will begin,” Enrique Iglesias, former president of the Inter-American Development Bank (IDB), told the Reuters Latin America Investment Summit.

The Fortune Global 500, a list of the world’s largest companies, now includes twice as many Latin American firms as it did in 2005.

Mexican billionaire Slim, whose telephone giant America Movil (AMXL.MX: Quote, Profile, Research) is on the list and operates from United States to Argentina, has been exploring opportunities in the European market and the company is not discouraged after recently failed buyout bids in Serbia and Poland.

“(America Movil) is a very large company with the necessary capacity, size and financial strength (so that) I believe we will be invited almost every time there is an important deal,” finance chief Carlos Garcia told Reuters.

IRSA President Eduardo Elsztain said he expects the company’s U.S. portfolio to exceed $250 million with a $30 million deal coming in the near-term.

“These are historic opportunities,” he told Reuters.

State-run Banco do Brasil (BBAS3.SA: Quote, Profile, Research) could join those expanding in the United States with an announcement expected this week, with Portugal also in the bank’s sights, Chief Executive Aldemir Bendine told Reuters on Friday.

It’s a welcome change from the situation roughly two decades ago when Latin America had only a modest international presence and when roiling debt woes, high inflation and corruption were all taking a toll on local finance.

Direct foreign investment into Latin America increased from $8 billion in 2000 to $35 billon in 2008 before moderating to $11 billion in 2009 when the global financial crisis hit, according to data from the United Nations economic body for Latin America, Cepal.

But Adam Bryk, an analyst with Deloitte Mexico, believes that buyout deals inside Latin America will always be much larger than the acquisitions outside the region.

“The only companies that are likely to be looking overseas are (…) the very large, the very successful,” he said. “At the end of the day as with any country, the majority of M&A, which is picking up everywhere, is going to be internal.”

Argentina’s Banco Macro (BMA.BA: Quote, Profile, Research) told Reuters that could expand to neighboring markets while telephone company Entel Chile (ENT.SN: Quote, Profile, Research) — one of the national industry leaders — is open to expanding its business to other countries like Colombia, Peru and Uruguay.

Mexican retailer Soriana (SORIANAB.MX: Quote, Profile, Research) also said that its ambitions to expand into the United States or the rest of Latin America are a long-term goal with a five-year horizon.

(Editing by Steve Orlofsky)

Analysis: Latin America companies look abroad for buyouts