COLOMBIA: An Introduction to Corporate/M&A

Government Reforms 

Over the course of the second year of the government for Colombia's first left-wing president, the country has been in the midst of several proposals for structural changes in terms of political, legal and economic structure. The government has proposed numerous legal reforms, some of which are still under discussion in Colombia’s congress. Hot topics include tax, pensions, health system and labour. Even though, as of 2024, only the tax reform had been passed and enacted as law, a substantial degree of uncertainty has been a constant in the economic and political environment. In particular, the reforms seek to centralise the health system and make it predominantly government controlled and do something similar with pension funds. The passing of the proposed labour reforms would increase labour costs for companies which mainly do business in Colombia. Notwithstanding the foregoing, per the projections of the IMF, the country is expected to grow at 1.1% for 2024, and inflation is supposed to keep decreasing until it reaches 5%, attaining more stable levels. In addition to the above, there have been constant signals from the Government that it intends to intervene the tariffs of public utilities and of other public services (ie, tolls). Notwithstanding the above, the institutional checks and balances have provided certain legal security, and the rule of law has been maintained. Both courts and congress have posed a blockage to most reforms, especially those that appear to be extremely populist or fiscally irresponsible.

The M&A Market 

Similarly, the M&A market has continued stabilising after the uncertainty faced in 2023. Even though the number of transactions reduced in a 3.22% in the first quarter of 2024 with respect to the same period in 2023, the total aggregate value of those transactions significantly increased by over 300% comparing the same periods (TTR Data Quarterly Report of Q1 2024). The deal volume has stabilised, but sophisticated players have learned to navigate the turmoil and have ventured towards higher value transactions. Some of this high value transactions have involved Nutresa and Grupo Sura deals for approximately USD1.4 billion in combined value and Grupo Calleja acquisition of Grupo Éxito for USD1.016 billion, all of them carried out through the Colombian stock exchange market.

Local Elections 

Also supporting the Colombian economic turnaround , from on January 1, 2024, the recently elected local governments of mayors and governors have taken office and started implementing their policies. Particularly, the four major cities of the country, Bogotá, Medellín, Barranquilla and Cali have elected more pro-market leaders, steering political opposition to the national government. Many people have interpreted this tendency as an opening of several opportunities in the development of the economic market, at least in the major cities. Consequently, even though inbound acquisitions continue to decrease with respect the first quarter of 2023, they continue to be the most representative transactions of Q1 in 2024 by being nearly half of the transactions completed this year (TTR Data Quarterly Report of Q1 2024). Local governments have continued their pledge to develop the cities infrastructure and continue developing major projects such as the Bogotá metro system, notwithstanding the national governments intentions to change the current project. Local companies with regional stockholding have continued to develop their strategy and initiating new projects.

Climate Change 

One of the most important challenges of local governments in the first quarter of 2024 has been to face the climate change consequences of el Niño Phenomenon, which, coupled with the presence of more and more businesses such as data centers that imply a major consumption of electricity, have left draughts that led local governments to ration campaigns on the use of water and electricity. National and local governments have destined over COP2.2 billion (USD550 million) to face the climate contingency. With respect to the market, this opens the door for opportunities in association with local and national governments to continue developing industries such as infrastructure and power. Certainly, the climate change contingency has placed the spotlight on the need of maintaining, updating and expanding the offer for electrical power in Colombia and the national government has been emphatic on its efforts to pursue the development of clean energies. As a consequence of the foregoing, among other factors, both infrastructure and climate and decarbonisation investment have been placed on the first spots of the opportunities to be developed in 2024 (TTR Data Quarterly Report of Q1 2024).

Telecommunications and Fintech 

Other sectors that have maintained its activity and intensity in the Colombian market are telecommunications and Fintech. On telecoms, Movistar and Tigo announced their intention to consolidate their network and will be working towards closing the deal in 2024, subject to the relevant approvals. The second and third telecommunication providers in Colombia, are teaming up to create a unified network and the awarding of 5G spectrum, point towards a hectic year in the telecommunications market, including the development of and investment in infrastructure to ensure the synergies of the deals are captured by all the stakeholders. This has also led to appetite by foreign investors, as TTR Data has qualified “Internet and technology companies” to be the “most attractive to foreign investors by deal volume” (TTR Data Quarterly Report of Q1 2024).

Start-ups 

Second, Colombian market has been especially relevant for start-ups. Last year it saw private equity firm Kandeo and US-based alternative asset manager CrossRegional acquired fintech payroll loan provider Finexus, and this year potential for similar transactions is growing. These types of transactions have become more and more attractive considering that, even though the interest rates have decreased, the interest rates particularly for low-income individuals are still at historical heights. We expect to keep seeing this type of transactions and generally a turn towards Fintech.

Distressed Assets 

Finally, distressed assets in the market have been up for sale and we have seen a tendency of funds or strategic buyers interested in such type of assets. We do not discard the distressed M&A market to become more robust. Several airlines and retailers are currently undergoing reorganisation or liquidation processes which may lead to innovative purchase structures.

Looking Forward 

Looking forward, in the event the most structural reforms of the government are not approved or are mitigated through the legislative process, Colombia will be in a stage of more stability and the M&A market would probably become bullish, particularly, considering the following factors:

1. The near shoring trend is still strong and making Mexico a go to place for establishing links in the supply chain that used to be in China. Colombia has the same potential and could become a good business partner for American companies in such venture. With the approval of the Chips Act new opportunities may come for Colombia.

2. Considering the need for infrastructure developments, it is possible that the syndication of mature infrastructure assets shall continue with its corresponding sale of 4G assets to infrastructure funds, hence, releasing the balance of the construction companies and giving them firepower to focus on 5G assets.

3. A more stable environment in Venezuela will likely open outbound M&A opportunities by Colombians in Venezuela.