Romero: M&A in LatAm is about expecting the unexpected

Wooden blocks with M&A written on it
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The Latin American market has exploded in the last few years. However, because of recent openings and imminent launches, the excitement doesn’t seem to stop. When landing in these territories, operators face an important decision: they can do it on their own or they can rely on local knowledge through an existing company.

Cristina Romero, Partner at LOYRA, gives SBC Americas an analysis of M&A activity in Latin America and reviews the challenges around landing in a new market when it’s done with support from another party.

Cristina Romero

In the last 18 months we have participated in quite a few cross-border transactions in jurisdictions located in what we (mis)call LATAM. On more than one occasion I have expressed how little I like the term “LatAm”. Each country, each jurisdiction, is a world in itself. I have no choice but to use it, however, to preserve the brevity of this article, where I will try to discuss some of the great challenges (or, many times, mere psychological barriers) presented by doing M&A in LatAm in the gaming and betting industry.

When a client trusts us with advising on a potential M&A transaction, be it buy or sell side, and gives us the famous last words “Don’t worry, it is very simple, you are going to go through this immediately and we close in a month,” two things always come to mind: the inevitable pride thinking that the client has chosen LOYRA and, without a break in continuity, the German word “Galgenlachen“. The laughter of the convict on the way to the gallows. 

Knowing that simple M&A is an oxymoron, we add three layers of complexity when it comes to a transaction that covers several jurisdictions and that, in addition, touches LatAm territory. And, who can picture a company from the cold North of Europe buying gaming and betting operations in Peru or Chile? Or a big Vegas player looking for a partner in Argentina or Mexico?  It’s happening.  And an investment fund that buys gaming assets in more than 40 jurisdictions that include more than 8 in LatAm? It has happened. And the trend will only linger, and we shall soon enough witness LatAm companies expanding to other jurisdictions in the region and, why not, conquer both the European and US markets. It will happen. 

The need for geographical diversification, growth in an environment of increasingly narrow margins, and the importance of accelerating time to market in certain markets have made inorganic growth via acquisitions or integrations an option that is not only viable but almost inevitable.  The sector, still fragmented, is evolving at full speed and differentiation in technology, in local experience, in very specific operating factors, in generation of network effects that, many times, can only be built via M&A, is increasingly critical. What would have been of today’s META if I had not bought Instagram at the time? Or WhatsApp? The gaming and betting industry is not much different. And here come the big challenges.

First challenge: information and order. In most cases, the selling company fails to communicate what it is, its potential, its value, for a mere matter of disorder in the information. Here, for what it’s worth, onboarding advisors, financial and legal, are key from the beginning. It seems like an unnecessary cost, but I have seen too many times how much value was left on the table and there are ways to structure the costs so they do not burden the transaction unnecessarily and align interests the right way.

Second challenge: timing expectations. No matter what jurisdictions might be at play. Managing them on two levels, in the two worlds of buyer and seller, is critical. How to do it? With all the delicacy and transparency in the world. It is the first moment to build trust.

Third challenge: language (in the broad sense). The culture, the liturgy of negotiation is tremendously heterogeneous.  However powerful the financial and strategic motives that speak in favor of a certain transaction, it can easily derail by a simple lack of protocol and understanding of the other party and the environment in which it operates. How to bring positions closer?  An open mind and active listening on both sides of the table. A multicultural and multidisciplinary team to support the process shall surely ease the burden. 

Fourth (last, but just for today) challenge: the memorable Compliance. On multiple occasions I have encountered prejudices about the formality of a transaction simply because it was located in a LatAm jurisdiction. Prejudices have almost always been followed by genuine surprise at the realization that countries such as Chile, Mexico, Colombia, Peru and many others have standards comparable to those of the EU or the US.  How to tackle it? With solid knowledge and, again, a multi-jurisdictional view, since many times it is not enough to explain what applies in the country of one of the parties, but rather how it compares to the jurisdiction of the other party to achieve that necessary comfort for the final agreement. You must know how to build bridges.  Especially when one of the parties is a publicly traded company, which frequently happens in the gaming and betting industry.

There are multiple factors and their corresponding challenges that must be taken into account when pursuing M&A in the LatAm gaming and betting industry, but the most prominent is the latter and, fundamentally, the regulatory environment. The greater the security, the more likely it is to attract investment and maximize the value of companies. It seems obvious, but many regulators do not fully understand it and, what is worse, communicate it to the world. 

Tip (if they were good, they would not be free): a good team that combines international and local experience and that has enormous doses of patience and “waist” as we say in Spain. There comes the “expect the unexpected” and know-how to wait. The ability to improvise is an undervalued asset and very useful in environments like the one at hand. 

We expect a new wave of M&A in 2023 once the macro environment somewhat stabilizes. So, be prepared and laugh a lot, as most M&A trades eventually close.