Dynamics of M&A Activity and Crises in Latin America

Abstract

This paper studies the dynamics between levels of M&A activity (average transaction value and number of deals) and crises in seven Latin American countries from the period between 1990 through 2007. Two hypotheses are tested using regression analysis: (1) whether the level of M&A activity increases during crises due to the “bargain hypothesis,” due to the low valuation of target companies, or (2) whether M&A activity decreases due to the financial distress of potential buyers (“financing constraints” hypothesis) or the financial distress of potential targets (“loss of confidence” hypothesis). Analyses at the country and industry level show that the average transaction value of M&A deals decreases with every crisis. Support for the second hypothesis is found within the Manufacturing, Energy and Utilities industry, in which the number of deals increases.