Why companies are expanding in Latin America through acquisition
As companies like Amazon and Apple hit trillion-dollar market values, and ecommerce giants like Jet.com and eBay dominate the online marketplace, finding a way to make money and grow your business in today’s times can be tough. Indeed, it often feels as though it is not possible to get ahead of your competitors or find new ways to diversify, but the good news is that you can.
Below, I’ve rounded up just some of the reasons why companies, both big and small, are choosing to buck the trend and expand into new territories — in particular, in Latin America, through the acquisition of firms and startup companies that can unlock huge potential.
Why Latin America?
With the United States and the United Kingdom two of the most well-trodden markets in the world, at least, two markets where Western businesses want to expand and have a presence in, choosing Latin America as an alternative may seem like something of a mystery. Indeed, Latin America does not have the world’s largest economy, and its people aren’t as rich as those in the Western world, but there is a good reason why you should consider LATAM markets.
Not only is the territory situated close to the United States and Canada, but it offers a huge untapped market, that many businesses have so far yet to visit. It’s common knowledge that, once you have cracked the US, Canada, the UK, Australia and Europe, the next logical step is to enter the Asian market and attempt to have a crack at countries like Japan and China. The latter of those countries is expected to hit GPD growth of 6.6% this year, thanks to investments from Western companies looking to take advantage of its ever-growing manufacturing industry.
But Latin America, on the other hand, offers a similar level of market and opportunity, without the competition from other brands. Investors and entrepreneurs are beginning to realise the potential of the territory, which is expected to enjoy quarter-on-quarter growth of around 2% this year, with economies such as Chile exploding thanks to foreign direct investment and a growth in its renewable energy industry. Ecuador, on the other hand, has seen changes in tax regulations, and now is predicted to grow fast thanks to increased trust in the government. In Colombia, thirteen new trade agreements and being one of the most competitive trade zones has allowed the country to grow and attract investment, whilst Mexico has a new president, who has positively impacted the economy and is forging new trading relationships with the US.
As countries across LATAM realise just how important it is to be attractive for businesses, they are lowering taxes, offering labour incentives and giving out benefits. Paraguay, for example, helps businesses save money by cutting the cost of energy, whereas Argentina has significantly lower tax rates than some other countries in LATAM, encouraging inward investment.
Acquiring another company
Acquiring another company can be hard work. Not only do you have to compete against other businesses who may be interested in a takeover, but you must also think about the cultural differences between Western countries and Latin America, and realise that you will have to make changes and sacrifices to both the way you run your business, and the products and services that you sell. Once you have found a company that you’d like to acquire, you need to raise the capital to do so, whether that’s through using company savings and stocks, or by raising capital through bank loans, other investments or government assistance.
Once you know that you can afford to acquire a company, then you must decide whether or not it is the right time to acquire — it may be that it’s going to be too time-consuming or costly to get things done, or that a competitor is entering the market and you’d rather bring your own company into LATAM than take the reins of another. You must also ensure the company is right for you — will it fit with your ethos? Is the company too different to your core offering?
Understanding exactly how your business can integrate with an acquired brand is important, so do your research and ask questions. Some say that you must treat an acquisition like a marriage — compromising and doing what’s right for the businesses, rather than for egos of CEOs and other company executives, is critical. Finally, you should focus on communication, and ensure that everyone is on the same page. If you have differing opinions as the acquisition goes through, then there’s a chance that you’ll face some friction when trying to make changes.
Getting the legalities sorted
Once you have determined that you’re working with the right company and you’re happy to go ahead, you must finalise the deal and get the legalities in place. Acquiring a company can differ from country to country in Latin America, so work with a company that offers legal services such as legal due diligence to ensure you’re covered. The truth is that you cannot spend months and years working out local laws — so you must be able to trust your lawyer and accept that they will do everything in their power to help the deal go through. Be cooperative, take your time, and have a backup plan in place should everything collapse and you’re left back at square one. By the time you go through the process of acquiring a company, the chances are that a competitor is already hot on your heels, so having an action plan and a day-one strategy is truly critical.
Expanding your business in markets like Latin America through acquisitions can be tough, but with some hard work, you’ll be able to do it. Take your time, remember that a wrong decision could cost you millions of pounds, and be prepared to make sacrifices for the good of your organisation. Whatever you decide to do, I wish you the very best of luck with your journey.