All questions

Overview of M&A activity

The Colombian economy experienced a major setback as a result of the covid-19 outbreak, the global crisis and the social protests that took place in 2021. This directly affected Colombian M&A activity, which was down overall in 2020. However, it is expected that as the world recovers, and as confidence in private consumption and investment recovers, the economy and M&A activity in Colombia will strengthen in the upcoming quarters. For instance, during the second quarter of 2021 the economy grew 17.6 per cent compared to the same period in 2020.2 In addition, according to the latest JP Morgan projections, Colombia's GDP will grow 9 per cent in 20213 and the Organisation for Economic Co-operation and Development (OECD)'s 2021 Economic Outlook projects real GDP to rise by 7.6 per cent.4 In the second quarter of 2021, foreign direct investment in Colombia reached a value of US$2.092 billion, with a growth of 62 per cent compared to the same period of the previous year.5

Between January and September 2021, 120 M&A transactions were registered in Colombia, 27 more as compared to the same period of 2020. Regarding the total amount of transactions, the 72 transactions that reported their values in 2021 amounted to US$13.641 billion, while 54 transactions that reported amounts between January and September 2020 reached a value of US$3.712 billion.6

Despite the challenges presented by the pandemic and the social protests, Colombia remains attractive for foreign investment. Set forth below are some of the key factors that will foster M&A activity in Colombia in 2022:

  1. investors seeking to purchase assets at a discount price;
  2. lower valuations owing to the effect of the currency exchange rates of strong foreign currencies as compared to Colombian pesos, which result in cheaper targets;
  3. buyers and sellers looking for business restructuring, partnerships and strategic alliances in a post-pandemic era;
  4. favourable regulatory environment, including a flexible foreign investment regime and tax benefits for investors;
  5. strong rule of law and increasingly sophisticated M&A market in Colombia, which provides confidences to foreign investors in the Colombian M&A market;
  6. the Colombian government, seeking to raise funds to recover the country's economy, by means of the sale of certain state-owned companies (i.e., in the energy sector);
  7. since last year the Colombian government has launched the fifth generation (5G) infrastructure programme. Investments are expected to reach an estimated US$5.9 billion. This will attract foreign investors willing to invest in Colombian infrastructure and energy projects; and
  8. international businesses that continue to expand their operations in the country, highlighting Colombia's positioning as an export platform.

However, it is worth highlighting that the presidential elections that will take place in 2022 in Colombia may play an important role that could affect the M&A market. The social and economic crises faced in Colombia during the pandemic and a disapproval rating above 77 per cent of President Duque could pave the way for a candidate from the left wing to win the elections.