Top Domestic M&A Deal in Mexico for the Year

Achieving majority state control of Mexico’s energy sector was a primary objective of former President Andrés Manuel López Obrador. This goal was realized in his last year in office when the government, through a specially designed acquisition trust overseen by Mexico Infrastructure Partners (MIP), completed a $6.27 billion deal to acquire 13 power-generating assets with a combined installed capacity of 8.54GW from Iberdrola, a Spanish company.

This transaction, recognized as the Domestic M&A Deal of the Year, stands as the most significant acquisition ever made by the Mexican government. Furthermore, it is the largest deal ever seen in Mexico’s energy sector and the most substantial transaction in Latin America’s power generation industry thus far in the decade.

The policy vision set forth by the previous administration remains intact under the leadership of Claudia Sheinbaum, who assumed office in October. The objective of increasing the state’s control over energy assets to ensure energy security and independence was a core motivation behind this deal. Edgar Amador, Mexico’s undersecretary for finance and public credit, emphasizes that this purchase aligns with the desires of the Mexican population and underscores the government’s commitment to honoring its promises.

Former President López Obrador aimed for the Mexican state to oversee at least 50% of electricity generation in the country, a goal that has now been surpassed, with the Iberdrola acquisition increasing state-owned assets to 54% of total generation.

Amador points out two key aspects of this deal that warrant attention. Firstly, he highlights the substantial technical improvements since the acquisition, with the cost of producing a megawatt-hour now 28% below the pre-sale average, and the overall efficiency rate of the 13 plants standing at an impressive 90.3%.

Moreover, the success of this acquisition underscores the financial acumen of the Mexican state. The complex deal, which involved $2.4 billion in equity and $3.87 billion in debt, was structured thoughtfully. The debt arrangement included a two-year bridge loan of $1.39 billion facilitated by financial institutions such as Barclays, BBVA, Santander, and SMBC, alongside a $2.48 billion 15-year term loan from Banobras, Bancomext, and Nafin.

The orchestration of this deal through a specialized trust, the Mexico Energy Investment Trust (Fiemex), within the National Infrastructure Fund, further solidifies the government’s competency in managing significant transactions. The successful execution of this acquisition emphasizes that the Mexican public sector possesses the capabilities to engage in mergers and acquisitions with sophistication and efficiency, working alongside institutional investors and market-leading financial institutions.

This acquisition marks a pivotal moment for the Mexican energy sector, positioning the government as a key player in the country’s power generation landscape. Through strategic planning and meticulous execution, the Mexican state has demonstrated its ability to achieve monumental goals in the energy sector and assert its control over essential assets critical to the nation’s energy security.