CDI Global

CDI Member Spotlight: Mexico Trends and Opportunities

We sat down virtually with Demian Esser of Pedralbes Partners, our newest member firm located in Mexico City, Mexico. Pedralbes was established in 2014 by Demian Esser and José Lopez-Portillo, who brought together their backgrounds in banking and private equity investing. Previously, Demian was a director for Citigroup London, leading their investment banking team in the industrial and transportation sectors. José was a principal with one of the leading growth capital funds in Mexico, LIV Capital, with a focus in the digital and media sectors. Together they saw an opportunity to set up a firm focusing half on investment banking services and half company advisory for cross-border transactions.

Demian Esser joined us to talk about transactional trends in Mexico, and some of the strategic opportunities that are still available in the current landscape.
 
Q: What has been the impact of COVID-19 on the major industry sectors in Mexico? Are there any winners emerging from the pandemic?
 
Demian: As in other parts of the world there has been a severe overall impact on the Mexican economy, but some areas have still been on the rise. The digital and commercial space has been a winner, particularly ecommerce and digital transactions. It took an event like the pandemic to make the necessity and relevance of digital services more evident to the consumer. On a B2B level, there has been a demand for professional services that focus on digital marketing, tech services, and software solutions. 

Q: Historically, Mexico has seen strong investment in the hospitality and leisure sector. What will be the impact of the pandemic on this sector in the short and long term?

Demian: There has definitely been a negative effect and deals that have fallen through, but we expect Mexico will be well positioned in the future both as an attractive travel destination and for institutional investments. Because of its proximity to the United States, Mexico is in a strong position for investments in strategic operations, particularly with the international supply chain interruption many markets have experienced due to the pandemic. 

Mexico traditionally is more of a leisure destination, rather than a business destination. The tourism industry should recover when a vaccine becomes available and the pandemic slows. From an investor’s perspective, this could be a very interesting time to look at the country for opportunities in that market.

Q: In which sectors are buyers or sellers active in pursuing either domestic or cross-border transactions?

Demian: The sectors where we are seeing key activity are industrial, chemical, food and food production, and to some extent medical equipment. We have had several interactions with potential American buyers who see the opportunity to position themselves, as well as take advantage of the current exchange rate. Valuations have also come down somewhat. Domestic transactions have slowed more than cross-border activity, so there are currently more interesting opportunities for American investors.

Q: What forces are prompting these transactions?

Demian: There is a demand from strategic American players to position themselves in Mexico as a production hub, particularly in industrial manufacturing, food production and the chemical sector. Their intent is to bring the supply chains closer to home, because COVID-19 has exposed the risks of importing goods or products from too far away.

Q: How will the changes to the NAFTA agreement affect inbound and outbound deal-making by Mexican companies?

Demian: The positive news is that there is an agreement put in place that takes out uncertainty concerning NAFTA. The logistics have been in place for a long time, so there is a good foundation for companies to establish themselves in Mexico.

Q: Does the Mexican government want to increase foreign direct investment? Are there specific policies or incentives to encourage such investment? Which industries might be most affected?

Demian: Government policy so far is to support industries in parts of the county that are less prosperous, such as agricultural areas. There is a huge demand by the United States from consumers, retailers, and food producers for fresh produce. Mexico is close to becoming their leading exporter of fresh fruits, vegetables, and vegetable oil. Production is located in more rural and less well-off regions to the south and the west, and the government has shown support by working on mandates to benefit these areas.

Thank you for your time today, we look forward to working with you and welcome you to the CDI Global family. CDI Global specializes in cross-border transactions, and we believe the expertise brought by your firm will be a great asset to our clients looking for opportunities in Mexico.

Demian: We are very excited to be joining the CDI Global Network, and the timing is perfect. Our firm is a great fit with CDI, both from a business and cultural perspective. We look forward to expanding the cross-border opportunities we can bring our clients by utilizing the vast knowledge and reach of the international CDI network.

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