In the wake of Brazilian President Dilma Rousseff’s removal from office on August 31, 2016, feelings were divided about the impact that her successor, Michel Temer, would have on the country’s M&A environment. At the time of survey, half of the respondents believed Temer’s policies were having a positive effect on M&A. But a third believed there had been no change. Meanwhile, 16% said Temer’s policies were having a negative impact. We have since seen Temer become subject to a high court investigation following accusations of bribery, which have spurred calls for his resignation.

“We expect changes from the president and expect the new administration to get inflation under control,” one executive says. “We also expect the market to begin recovering if oil prices rise and the administration takes the right steps to reduce debt and stimulate the economy.”

“Brazil is rich in terms of resources, and the dipping value of the real is attracting U.S. acquirers,” says the managing director of a private equity firm. “They are able to target larger businesses which will increase their strength in the Latin American market.”

Acquirers from the developed regions of North America, Western Europe and Asia-Pacific are seen as dominating the field for incoming M&A interest from outside of Latin America.

Indeed, the largest deal tracked by Mergermarket in 2016 in Latin America was an agreement by State Grid Corporation of China, through its subsidiary State Grid International Development Co., to acquire a 23% stake in Brazilian energy generation and distribution firm CPFL Energia SA from Camargo Correa SA for US$12.4bn.

“Growing confidence in the Latin American region and the favorable valuations and regulatory reforms are the main attractions for acquirers from Western Europe,” says the head of corporate development for a Latin American firm. “Countries like the UK and Italy are doing large deals in this region as they intend to gain access to the region’s improving development and potential.”

As respondents predict rising interest from acquirers within Latin America, they also named Brazil, Mexico, Chile and Argentina as the most likely launch pads for intraregional activity.

Of these, Brazil is the standout, with 92% of respondents citing it as the most likely home-base of intraregional acquirers in Latin America.

The World Bank predicts that Brazil will emerge from recession in 2017, following an economic contraction of 3.4% in 2016. Brazilian equities skyrocketed in 2016 as President Rousseff was successfully impeached and removed from office, alleviating political uncertainty.

“Brazil will see maximum domestic transactions as the value of the real is falling,” says the managing director of a private equity firm. “This is resulting in more consolidation as businesses target efficiency to stabilize their financial performance. Chile and Mexico will also facilitate some deals in Brazil as they want to be a part of the largest regional economy.”

Mexico, which recently undertook significant structural reforms to allow for more investment, including in its energy sector, polled close behind Brazil, and was named by 82% of respondents.

“New regulatory reforms are attracting foreign acquisitions in the energy and telecom sectors in Mexico,” says the director of corporate finance for a Latin American company. “Mexican businesses are proving to be very attractive targets thanks to these structural amendments.”

Meanwhile, Latin American firms are seen as increasingly likely to seek acquisitions outside South and Central America.

An overwhelming 92% of survey respondents said outbound interregional acquisitions from Latin American firms is set to increase, with almost one-in-three saying the increase will be significant.

In 2016, however, outbound interregional deals by Latin American acquirers followed the overall regional trend of fewer deals for greater value, with 30 deals in 2016 versus 45 in 2015, and a total volume of US$10.7bn in 2016 up from US$6.8bn a year earlier.

“Acquiring assets outside of Latin America to get global exposure is a growing trend among Latin American companies,” says a managing director of an investment bank who believes cross-border activity involving Latin American bidders is set to expand significantly.

In 2016 the largest glassmaker in Mexico, Vitro S.A.B. de C.V., spent more than US$1bn buying assets in the U.S. from PPG, the Pittsburgh, Pennsylvania-based supplier of paints and specialty materials.

In July 2016, Mexican baking products multinational Grupo Bimbo completed its US$206m acquisition of Panrico S.A.U., the Barcelona-based supplier of bakery and bread products, after finally receiving approval from the Spanish government for a deal that had been first announced a year earlier.

North America, Western Europe and Asia-Pacific continue to be seen as the most attractive hunting grounds for Latin American bidders, with only 2% between the three regions.

“The European market is going to see the most outbound activity,” predicts the head of corporate development for one firm active in the region. “Developed businesses are always looking to take advantage of the high standards and significant demand environments there. The superior consumer market is very attractive to Latin American acquirers.”

Yet as global ambitions rise among Latin American firms, interest is percolating up in new markets — especially Africa and Eastern Europe.

Notably, almost half of the respondents named Africa as a region that will offer the most attractive outbound M&A opportunities for Latin American bidders over the next 12 months.

Interest in Eastern European targets spiked this year, too, according to the survey results.

Roughly a third of respondents said Eastern Europe would offer the most attractive outbound M&A opportunities for Latin American firms in the next 12 months. A year earlier, the corresponding share of respondents who called Eastern Europe an attractive locale for acquisitions was less than half that figure (16%).

Respondents agree that the hottest sectors for Latin American M&A in the near future will be consumer products and retail, infrastructure, and technology, media and telecommunications (TMT). Every respondent surveyed concurred that M&A activity would increase in each of those sectors over the next year.

“There is momentum in all these sectors,” one corporate executive says. “The potential growth in areas like consumer and TMT is higher because the market has changed. Companies doing deals here are able to expand their business and earn higher revenue and profit.”

An emerging regional middle class should create incentives for international players to tap into Latin American consumer goods markets, respondents said.

That raises the likelihood of acquisitions by firms aiming to take advantage of a fragile economic recovery that could lift incomes and spending over the next few years.

“Disposable income has increased across the Latin American market as the public’s lifestyle and income has improved,” says a partner at a private equity firm. “This is creating growth opportunities in the region which foreign acquirers are likely to target through acquisitions, as they find it more effective to enter the market through an established operating and sales chain.”

In one 2016 transaction between firms based in Mexico, media group Grupo Televisa de S.A. de C.V. agreed to spend US$70m for a 50% stake of Mexico’s Television Internacional, S.A. de C.V. — the company that provides television, internet and telephone services — from Multimedios Estrellas de Oro S.A. de C.V.

Corporate restructuring is broadly seen as the primary driver of M&A in the region over the next 12 months, followed by strategic moves by corporations to tap high-growth markets as the region returns to growth.

“Companies are restructuring their business activities and adopting new technological changes to improve their performance,” one respondent says. “This process is creating new M&A opportunities.”

Indeed, lower energy prices sparked interest in divestiture programs in countries like Brazil, while Mexican reforms opened the door for oil acquisitions and partnerships with national oil champion Pemex.

Meanwhile, prospects for a return to regional growth may spur M&A activity as firms position themselves to reap the benefits. More than half of respondents said Latin American M&A in 2017 will be driven by attempts to tap high-growth markets.

The persistent difficulty of performing due diligence is seen as the biggest impediment to foreign bidders acquiring assets in Latin America, with 54% of respondents citing due diligence trouble as the top roadblock for incoming M&A interest to the region.

“Jurisdictions here are very different,” says one corporate official. “Different cultures make it challenging to conduct extensive due diligence, which can lead to several different types of risk. As a result, foreign acquirers are hesitant to move here, even though they see the potential.”

Close behind due diligence issues are concerns about political instability and abiding economic anxiety. Government intervention and corruption are also seen as important deterrents.

“Government interventions are very likely to happen, and when they do, they can impact foreign acquirers’ objectives,” says a partner in a private equity firm. “Those interventions threaten investors’ strategies and cause some deals to be unsuccessful because investors are then unable to fully leverage their abilities to achieve their expected market share.”

The opportunity to transform business models, as well as the sheer number of inadequately managed businesses available on the marketplace, are the main drivers for private equity firms seeking opportunities in Latin America this year, respondents say.

“Businesses here in Latin America are not well structured and there is plenty of scope for improvement,” says the head of corporate development of a Latin American corporation. “Businesses in the region are not that well versed in transformation strategies, and so are inviting private equity investments to help them improve their business approach and performance.”

In 2016, Equity International, the U.S.-based private equity firm, agreed to pay US$126m for a 25% stake in Estapar Estacionamentos Participacoes e Servicos SA, a Brazil-based company that provides parking services.

Also in 2016, Southern Cross Group, the Argentina-based PE firm, agreed to acquire Chile-based Petrobras Chile Distribucion Ltda., an operator of fuel service stations and distribution terminals, from Brazilian energy giant Petroleo Brasileiro SA for US$464m. Deal sentiment is positive among respondents with 68% anticipating that PE activity in 2017 will increase, with 14% believing that increase will be significant.

“I would say that we will see a rise in the level of PE activity in the Latin American market,” says the managing partner of one private equity firm. “The region is currently attractive thanks to its rich resource base and favorable operational costs, which makes profit margins higher.”

With relative stability and a growing economy, Chile has overtaken the two big regional powerhouses, Brazil and Mexico, to become the most attractive country for private equity firms, according to our respondents.

Chile enjoys a reputation for sound economic policy and boasts the highest sovereign debt rating in South America. The country’s annual economic growth rates have bested the Latin American average for several years running, and policymakers have lately pursued an expansionary fiscal policy aimed at promoting growth.

Meanwhile, if predictions of stronger global economic growth going forward are realized, the price of Chile’s key export, copper, may stand to benefit.

Chile also enjoys a reputation for being relatively corruption-free. The country ranked 23rd out of 167 countries in Transparency International’s Corruption Perceptions Index 2015 — better than France or Spain, and better than any other country in Latin America with the exception of Uruguay.

After Chile, respondents are looking to Mexico for new private equity activity.

“The lack of suitable targets in Brazil is driving private equity investments in Mexico,” says a group head of corporate strategy for a large international corporation active in Latin America.

For the region as a whole, respondents are generally optimistic about opportunities for private equity fundraising, although only 4% called the environment highly favorable.

“The fundraising environment is somewhat positive,” says a managing partner for a private equity firm. “Long-term investments have increased and investors are looking to contribute to the development of the region, which is likely to drive investments across the Latin American market.”

The prospect of lower oil prices for an extended period of time is seen as a potential impediment to dealmaking in Brazil and Argentina. Conversely, M&A activity would likely rise in Chile and Mexico if energy prices are subdued, respondents say.

Global oil prices collapsed from relative highs in late 2014 amid higher output volumes in the U.S. and slackening demand from China. While prices stabilized in the second half of 2016, the potential for another price collapse poses a challenge to economic growth throughout the region.

Yet despite recent oil price weakness, a prolonged energy boom in the 2000s helped foster a growing middle class in Latin America and reduced poverty, opening opportunities for investment in consumer goods to meet popular demand.

“A fall in prices would reflect positively on consumer market investments, and more deals would be likely to be made in this sector as compared to the oil and gas sector,” says one group head of corporate strategy. “Investors will look to diversify their investment allocations into new business sectors.”

Despite turbulence across global stock markets, 48% of respondents believe that the number of initial public offerings (IPOs) of Latin American companies appears set to grow.

Indeed, Brazil’s benchmark Bovespa Index ranked among the hottest equity performers in the world in 2016, notching gains of 68.9% in U.S. dollar terms, according to FactSet. The rally gained momentum with rising certainty over the impeachment of Brazilian President Rousseff, who was replaced by Michel Temer.

Alongside Brazil, equity indices also notched gains in Argentina, Chile, Colombia, Mexico and Peru. “There have been a lot of governmental changes across Latin America,” one executive from Latin America says. “We feel these changes will help stimulate markets and facilitate IPOs.”

Yet some respondents felt opportunities for firms to tap equity capital markets will be diminished.

“The market is not right for an IPO and we expect the market conditions to become worse,” says one managing director at an international investment bank. “The stock market will not grow and will remain low. Investors will avoid investing in the stock market, making it difficult to carry out IPOs.”

Brazil-based medical imaging provider Centro de Imagem Diagnosticos S.A, commonly known as Alliar, and its shareholders raised US$243m in October 2016 in the country’s first IPO of the year.

In January 2016, Mexican homebuilder Javer raised US$100m from the IPO of a 34% stake. Most respondents believe that the election of Pedro Pablo Kuczynski Godard in Peru will have a positive effect on the country — although a fifth of respondents believe nothing will change.

Kuczynski Godard, seen as politically center-right, is a free-market advocate who has pledged to fight corruption, lower taxes on small businesses and expand access to credit.

“The newly elected president will impact the Peruvian economy in very positive ways,” one executive says. “There is talk that the government will open up different sectors and make investments easier, creating new opportunities for investors.”

When it comes to Cuba, a majority feel that the U.S. trade embargo continues to be the biggest stumbling block to investment. However, a third believe that the local regulatory environment could be a minefield for outside investors.

“U.S.—Cuba relations have historically been problematic,” one executive explains. “This has been the biggest issue for Cuba. The trade embargo limits the amount of business Cuba’s partners can do with the country.”

Few in the Latin American business community believe Cuba will become a hotbed of M&A activity any time soon, even if the U.S. embargo on the country were lifted immediately.

An overwhelming majority of respondents (52%) believe it will take at least two to four years for a more developed M&A market to be established on the island once the U.S. embargo is lifted. Over a third (36%) believe it would take more than four years.

The price of oil, an export vital to many Latin American economies, plunged in the opening days of 2016 before staging a recovery. Crude plummeted below US$30 per barrel but rebounded to US$40-US$50 per barrel for much of 2016.

The vast majority of respondents have a positive perception of the impact Argentinian President Mauricio Macri is having on the M&A market in his country.

“A change in regulations has been very favorable for companies,” one executive says. “With the new administration in place, we expect conditions in the market to improve significantly. This will help boost the M&A market.”

There are some vocal dissenters, however: “Capital — or, rather, the lack of capital — is a major problem in our market,” says one director of strategy for a Latin American company. “We need the government to control inflation and interest rates. But neither of those is changing for the better. We are not very certain that the current government can effectively tackle the problems facing our economy.”

Argentina’s moves to lift capital controls are seen by a plurality of respondents as the single-most important initiative of the country’s reform agenda led by President Macri, who has dismantled most of the country’s currency controls since taking office in December 2015.

“The Argentinian government needs to remove capital controls to help the market grow,” one respondent says. “Capital markets are extremely regulated and this leads to a lot of difficult problems.”

Yet a significant minority of respondents say Macri’s key accomplishment has been resolving the country’s dispute with bondholders, allowing Argentina to regain access to global debt markets. Others point to the overhaul of state statistical agencies to provide better economic data to market players.

Macri has also packed his cabinet with businessmen and technocrats, cut taxes and announced new investments in shale oil — all in the name of kickstarting the country’s economy. The World Bank, which estimates Argentina’s economy contracted by 2.3% in 2016, also forecast growth of approximately 3% annually from 2017 to 2019.

The largest challenge facing the Argentinian business environment over the next year will be domestic resistance to austerity measures, according to two thirds of respondents.

Respondents also named near-term economic contraction and stifling government regulation and bureaucracy as significant hurdles.” The biggest problems that Argentinian businesses will have to manage is to remain active in an environment where the rules and regulations are getting stricter,” one respondent says. “We expect there to be an increase in austerity measures as the country is expected to default. Inflation has also plagued the market.”

“The country is relatively new to the bond market and because of this investors are skeptical,” says a managing director overseeing M&A at an investment bank. “We also expect a period of austerity measures, which we expect to become stricter and more difficult going forward.”