Mar. 9, 2020

Rodolfo Cappelo


Rodolfo Cappelo

Financial Advisory Partner, Deloitte

“The Ecuadorian economy and its prospects over 2019 were, at best, unpredictable.”


Rodolfo Cappelo has provided financial advisory solutions to different sectors, including construction, banking, insurance, mining, services, food and beverage, retail, health, hydrocarbons, and energy, among others. Among his most important projects was the purchase of an industrial group with presence in Chile, Ecuador, Peru, and the US. He has also advised on the sale of an important insurer in Ecuador to one the top-five insurance companies in the US.

What is your analysis of the Ecuadorian economy?

The Ecuadorian economy and its prospects over 2019 were, at best, unpredictable. Notwithstanding forecasts of economic decline, various events served to strengthen confidence, including the signing of the agreement with the IMF in March, the new economic plan, proposals for legal reforms to reactivate the economy, and other measures. In June 2019, Ecuador put into operation a plan to restructure the sovereign debt by repurchasing USD1.12 billion of its 2020 bonds. The agreed 10-year term, under better rates than previous issues, reduced the default risk on obligations due in 2020. In September, the country managed to raise an additional USD2 billion with terms of between five and 10 years, thus covering part of its financing requirements arising from the fiscal deficit. Nevertheless, by 3Q2019, Ecuador's economy and outlook had deteriorated, and the pressure to achieve the goals established in the economic plan led to further adjustments. In October, the government's announcement of economic measures provoked protests among various local groups, bringing economic activities to a halt and resulting in the subsequent repeal of the measures. Local and international confidence took a beating as debt holders and investors became alarmed at the prospect of an ungovernable country. Reduced profits saw the country risk rise to levels last seen at the beginning of 2016, when Ecuador suffered an economic recession caused by the massive withdrawal of deposits and the contraction of credit. Fears were subsequently allayed after the approval of laws governing tax collection coupled with the IMF's support for an economic program. The country's risk level has fallen in tandem with improvement of the Emerging Markets Bond Index (EMBI) indicator, issued by JP Morgan. Ecuador's biggest challenge now is the low or zero growth rate for 2020 forecasted by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and other economic analysts.

How did this context influence business?

Notwithstanding the above, local and foreign groups still believe in Ecuador. In 2018 and 2019, merger and acquisition activity revived following enactment of the law that lowered taxes on profits from the sale of holdings, shares, and capital rights from a 25% maximum to 10%, while permitting deductions on transactions. Relevant transactions included international and local groups acquiring major companies in the pharmaceutical retail industry, as well as in the distribution of food, beverages, and personal items. Local groups also branched out into Central America and the region through strategic acquisitions, while Mexican, European, Central American, and regional capital has entered Ecuador through the acquisition of major companies in the poultry, processed foods, meat, food, and beverages industries, among others. Investments have also been undertaken in the mining, manufacturing, aquaculture, and fishing and shrimp industries, among others. This is evidence of the attractive niches and investment opportunities available in the Ecuadorian market. Although government investment will be limited in 2020, PPPs and key asset concessions will be targeted opportunities for the private sector. This translates into great challenges for companies with a local presence that are seeking growth, profitability, and value generation for their investors. They will have to prepare strategically and seek out opportunities that generate sustained growth and provide for a competitive position. It is clear that looking for inorganic growth through acquisitions of companies, business lines, brands, and so on may make the difference and enable companies to accumulate synergies that generate the sought-after value. The need, then, is to be able to call upon teams of process consulting experts in M&A who can manage and leverage their guidance and experience to attain successful closures. This will enable the C-suite to concentrate its efforts on operations and, subsequently, the transition toward the union of firms, different cultures, and all those elements implied in a merger if expected results are to be achieved.

What is Deloitte's experience in these processes?

According to MergerMarkets, in recent years, Deloitte has advised on several regional transactions totaling approximately USD4 billion, positioning the firm as the strongest M&A processes consultant among the big four.