Mazars Americas - Current Status of Mergers and Acquisitions in Colombia

Economic outlook

Currently Colombia is facing different challenges such us high rates of CPI index (13.2% y-o-y) and financial interest (12.75% y-o-y). Despite Colombian inflation is one of the highest in LATAM, Colombian central bank expects that in second half of 2023, inflation will be smoothed and controlled until get CPI index of 8.0% as of Dec 31, 2023.

Additionally, Colombian president Gustavo Petro is about to present and start discussing with the Congress about renewal energy transition, social security (healthcare), labor and pension reforms which are focused on change the current social and economic frameworks. However, as these reforms are not defined yet, there is an environment of less attracting investment.

Relevant news

1. The low-cost airline Viva Air suspended its operations in Colombia with "immediate effect" due to the critical financial situation it is going through. The Superintendence of Transportation, the authority in charge of monitoring the sector, required Viva Air to guarantee the rights of users by maintaining communication channels and immediately seeking solutions "that the transport contract demands". Despite Avianca airlines is interested in acquiring Viva Air, the Ministry of Transport and Civil Aeronautic entity concerned about his acquisition and are preparing a decision on the definitive agreement between the two airlines, because apparently, they did not commit some necessary processes in the integration procedures.

1. Despite of maximum financial interest rate regulated by Colombian Central Bank is over 40%, most of the main Colombian Banks decided to reduce their interest rates for credit cards under 25% to incentivize the consumption and stimulate the Colombian economy.

Home currency impacts to global pressures (as applicable)

After Silicon Valley Bank (SVB) regulators shut down Silicon Valley Bank on Friday (March 10th, 2023), in the largest U.S. bank failure since the 2008 financial crisis, on Monday (March 13, 2023) Colombian exchange rate was impacted and exposed to a high depreciation.

Additionally, in the first week of March 2023, Colombian currency had a bearish trend, as a result of the statements done by Jerome Powell, head of the Federal Reserve, who pointed a possible interest rate increase. However, the failure of SVB can make the Fed change its current position. Marija Veitmane, senior multi-asset strategist at State Street Global Markets, explained that: “This is a difficult position that the Fed finds itself in, on the one hand, it needs to keep raising to stop inflation, but it also needs to protect the financial system. It feels like a lose-lose situation, the Fed and the market.”