The Landscape of Mexico's Private Equity and Sale Leaseback Markets

In recent years, Mexico's private equity and sale leaseback markets have undergone a remarkable transformations driven by various factors such as increased foreign investment, a booming nearshoring industry, enhanced financial inclusion efforts, and a growing trade surplus. In this article, we look at the current state of these markets, key trends and their profound impact on Mexico's economic landscape.

Foreign Investment Surges

Mexico has experienced an impressive surge in foreign investment, as indicated by preliminary data from the Economy Ministry. In the first three months of 2023 alone, foreign investment soared by a staggering 48%, reaching a remarkable $18.6 billion. Notably, this surge excludes significant transactions like the merger of Grupo Televisa SAB and Univision Holdings Inc., as well as the restructuring of Grupo Aeromexico SAB. Such a surge in foreign investment reflects the growing confidence of international investors in Mexico's business climate and its enormous growth potential.

Trade Surplus Reaches Record High

March witnessed a historic milestone for Mexico's trade surplus, propelled by the robust demand for Mexican goods from North America. The country's exports skyrocketed to an impressive $53.6 billion, surpassing expectations and cementing Mexico's position as a key player in global trade. This trade surplus not only boosts Mexico's economy but also serves as a testament to its competitiveness and ability to meet international demand.

Reshoring and Nearshoring Booms

Mexico has experienced a significant boom in reshoring  (returning domestic product manufacturing from a foreign country back to the home) and nearshoring (returning manufacturing closer to home), capitalizing on its favorable geographical advantages and competitive rates for highly skilled labor. As companies recognize the advantages of relocating or establishing manufacturing operations in Mexico, industrial park occupancy has reached an all-time high. Notably, approximately 45% of investments in these facilities come from US firms, while global companies from regions such as China, Italy, and Germany have also played a substantial role. This surge in reshoring and nearshoring activities has not only resulted in job creation and economic growth but has also solidified Mexico's position as a prominent manufacturing hub.

Increased Access to Financial Services

Mexico has made significant strides in improving access to financial services, which has had a positive impact on its private equity market. The efforts towards financial inclusion have opened doors for individuals and businesses to access capital and investment opportunities. As a result, a broader range of investors have been attracted, thereby stimulating private equity activity and fostering the growth of local businesses. The improved access to financial services has also strengthened the overall financial infrastructure, enhancing Mexico's economic stability and creating an environment conducive to private equity investments.

The Sale Leaseback Market

While sale leaseback transactions are not new to the Mexican market, they remain relatively underutilized compared to other North American countries. However, the potential and interest in sale leaseback transactions are growing as mergers and acquisitions activity rises. Transaction volumes, as reported by the Mexican Association of Private Equity (AMEXCAP), have been steadily increasing. Companies are increasingly recognizing the advantages of sale leaseback arrangements, enabling them to unlock capital tied up in real estate assets while maintaining operational control and continuity. Notably, the Ascension team recently closed two sale leaseback transactions for our private equity clients with locations in Querétaro. One of the companies is the largest privately held spring manufacturer in North America, while the other is a leading global manufacturer in the automotive components space.

Conclusion:

Mexico's private equity and sale leaseback markets are undergoing significant developments, fueled by increased foreign investment, a thriving reshoring and nearshoring industry, improved access to financial services, and a robust trade surplus. These trends underscore Mexico's growing importance as an investment destination, attracting both domestic and international investors. As Mexico continues to foster an environment conducive to business growth, the private equity and sale leaseback markets are expected to expand further, contributing to the country's economic development and stability. By capitalizing on these opportunities, Mexico can continue to position itself as an attractive investment hub in the global market.

We invite you to explore these resources to gain deeper insights into the evolving landscape of Mexico's private equity and sale leaseback markets.