Mexico has not had an initial public offering in 12 months. In fact, the country has seen only six IPOs since 2019, according to PwC’s Global IPO Watch.
By Carlos Martinez and Dominic Pasteiner
With the Mexican stock market in the doldrums, a number of publicly listed companies are looking to de-list or be taken private. The Mexican stock market was down 13.7% last year while the U.S., as measured by the Standard & Poor’s 500 index, was up more tan 16% over the same time frame.
In the last nine months, paper maker Bio Pappel, Banco Santander Mexico, Sempra Energy’s local unit Infraestructura Energetica Nova, dairy company Grupo Lala, and chemicals and paper distributor Grupo Pochteca have announced or launched plans to delist their shares from Mexico’s equity market.
While the reasons for doing so vary – from weak market performance to corporate restructuring to founders wanting to regain full control, the delisting announcements point to an “almost nonexistent” public equity market, said Martin Werner, co-founding partner of investment company DD3 Capital Partners.
There were only 160 listed companies including real estate investment trusts in Mexico in 2019, compared with more than 3,000 in India, for example, according to New York-based PE firm General Atlantic.
A big issue with Mexico’s equity market is its lack of liquidity, Werner noted.
As of 2018, Mexico’s equity market liquidity, measured by trading volume as a share of GDP, was 5.1x lower than Brazil’s and 1.9x lower than Chile’s, according to a 2019 report on Latin America’s equity market by the Organization for Economic Cooperation and Development.
The dearth of retail investors is the main reason for the low liquidity, said Arturo Saval, chairman of Mexico City-based PE firm Nexxus Capital, which has been behind some of the country’s most anticipated IPOs, including Grupo Traxion’s in 2017.
The country’s small retail-equity investor base and, consequently its huge growth potential was one reason behind SoftBank Group’s $150 million investment in Grupo Bursatil Mexicano’s online trading platform GBM+ last month.
Without a large retail investor base, most public equity shares in Mexico are purchased by institutional investors such as pension fund managers, or Afores, with long-term investment horizons, leading to low trading volume and liquidity, Saval said.
This gives Afores an outsized impact on the valuation of private companies looking to go public, Saval said. “In Mexico, it is these institutional investors that set IPO valuations, whereas in the U.S. it is the companies that set the valuations.”
The launch in 2018 of Mexico’s second bourse – Bolsa Institucional de Valores – “energized” the country’s equity market, although there is still a lot of ground to cover, said Saval, who is an independent board member at BIVA.
The country’s latest IPO took place on BIVA. Cox Energy America, a subsidiary of Spain’s renewable energy company Cox Energy, $33.7 million last July. It was Mexico’s first public share sale in nearly three years.
Without an attractive public market, many private Mexican companies are turning to mergers with special-purpose acquisition companies as a means to go public in the U.S., Werner said.
About 18 Latin American blank-check companies have been listed in the U.S. in the last three years, Randy Bullard, a Latin America-based partner at law firm Morrison & Foerster, said earlier this month during a webinar.
Based in Bogota, Colombia, Carlos Martinez is Mergermarket’s deputy Latin America editor and can be reached at email@example.com. Based in Mexico City, Dominic Pasteiner is Mergermarket’s Mexico correspondent. He can be reached at firstname.lastname@example.org.