04 / 05 / 26
The Rise of Private Credit and Hybrid Structures: How Are M&A Transactions in Latin America Being Financed?
MEXICO CITY, MEXICO, April 5th, 2026 – Despite the flexibility offered by this type of funding, acquirers are required to design increasingly sophisticated capital structures and conduct a detailed analysis of post-closing financial sustainability.
The dynamics of mergers and acquisitions (M&A) transactions in Latin America are undergoing a transformation in their capital structures. The evolution of financing mechanisms is currently influencing both the viability and the speed of deal closings, highlighting the growing role of private credit and hybrid structures that combine debt and equity.
In the current environment—characterized by high interest rates and increased selectivity from traditional banking institutions—buyers, particularly private equity funds, are turning to alternative sources of private financing.
Across the region, countries such as Mexico, Brazil, Chile, and Colombia stood out as the markets receiving the highest levels of capital during the first half of 2025, according to data from the Latin American Private Equity and Venture Capital Association (LAVCA).
According to Nadiezhda Vázquez Careaga, recently promoted to partner at SMPS Legal – Mexico, financing alternatives such as private credit and hybrid structures offer greater flexibility and faster approval processes compared to traditional bank funding.
Capital Structures and Operational Flexibility
The adoption of these types of capital enables the structuring of transactions that incorporate subordinated debt, mezzanine financing, or hybrid instruments that combine features of both debt and equity.
This technical diversification expands the possibilities for completing transactions that, under traditional banking standards, might face stricter regulatory constraints or longer negotiation periods. However, Vázquez notes that the use of these tools also carries specific financial implications. Operational flexibility is often accompanied by higher financing costs and stricter covenant compliance, requiring acquirers to design more sophisticated capital structures and conduct thorough analyses of post-closing financial sustainability.
“Overall, the rise of private credit is helping to sustain liquidity in the M&A market and accelerate certain closing processes, while also reshaping how financial terms are negotiated and how risk is allocated between investors and lenders.”
More Conservative Valuations
Although valuation multiples remain the starting point in M&A transactions, Vázquez explains that the real focus of negotiations has shifted toward how risks are allocated through mechanisms such as indemnities, escrows, earn-outs, and representations and warranties.
Multiples (EBITDA, revenue, among others) continue to serve as a reference point, but they are no longer the central axis of negotiations.
“Today, buyers prioritize asset quality and risk mitigation.”
She notes that in the current M&A market across the region—and particularly in Mexico—valuation expectations have evolved toward a more conservative approach.
“In the current environment, the market has made it clear that maximizing the multiple is not the only priority; securing a robust package of contractual protections and accurately reflecting the target company’s condition are equally critical.”
Based on her experience, value is no longer measured solely in price, but also in the legal certainty of the investment and the safeguards against potential contingencies.
Buyers Gaining Negotiating Power
Another clear trend in the regional M&A market is the shift from a seller-driven environment to a buyer-driven one. This is largely due to the strengthening of regulatory frameworks—particularly in tax and anti-money laundering matters—as well as increased sanctions and compliance risks.
According to Vázquez, this shift has transferred negotiating power to buyers, primarily driven by the need to mitigate potential contingencies arising from prior management. This is reflected in more thorough due diligence processes and greater demands for contractual protection. Key trends include:
- Increased use of earn-outs, linking price to future performance
- Broader representations and warranties
- Greater use of escrows and holdbacks
- Stricter closing conditions (regulatory, financial, and operational)
The current focus is no longer solely on closing transactions, but on ensuring proper risk allocation.
More Sophisticated Agreements
Compared to 2024 figures in Latin America, fewer M&A transactions were structured last year; however, deal sizes increased. According to the SMPS Legal – Mexico partner, this may indicate a market with fewer transactions in number, but larger, more complex deals with greater contractual sophistication.
She believes that factors such as high interest rates, inflation, and the global geopolitical landscape—reflected in the Englobally LatAm 2025 report—have influenced these results.
Uncertainty is another key factor shaping the market. In Mexico, one of the region’s leading M&A markets, significant developments such as judicial reform and the transition of competition authorities have notably increased caution in deal structuring.
This has also impacted closing mechanisms, which have traditionally depended on regulatory approvals and third-party consents.
“In recent years, it has become common practice to incorporate mechanisms that allow transactions to close on a conditional yet practical basis. Once the conditions are met, the transaction is perfected efficiently, with legal certainty and minimal execution risk.”
This has led to the implementation of parallel structures to mitigate risk, including escrows, retentions, holdbacks, and other vehicles designed to ensure compliance with post-closing obligations.
At the same time, economic volatility—exchange rates, inflation, and interest rates—has driven the use of more sophisticated price adjustment mechanisms tied to the target company’s financial and operational metrics.
According to Vázquez, variables such as cash flow, working capital, leverage, and EBITDA expectations have become key factors in aligning value and risk during negotiations.
Most Resilient and Attractive Sectors
In her view, three sectors currently stand out for their strong ability to attract capital:
- Manufacturing, driven by geopolitical advantages and international trade agreements, particularly in the context of nearshoring
- Infrastructure and real estate, supported by the expansion of industrial parks and supply chain relocation
- Technology, fueled by exponential growth in artificial intelligence and digitalization
These sectors share a key factor: alignment with global investment and productive transformation trends, positioning them as key drivers of the market.
She notes that the technology sector, in particular, is undergoing accelerated consolidation, driven by market fragmentation and increasing demand for AI-related solutions. Meanwhile, the logistics sector has gained strategic importance, as many companies are integrating logistics capabilities as a core component of their operations to optimize costs and efficiency.
Regarding Mexico’s energy sector, she explains that it has experienced a contraction due to regulatory uncertainty and increased government intervention. This has also impacted infrastructure projects, particularly in scenarios involving changes in contractual conditions or risks associated with concessions.
The full article was made in collaboration with Lexlatin, and you can find the original article in Spanish herein: https://lexlatin.com/reportajes/riesgos-inversion-america-latina-reformas-legales
All the information placed in this article and the rights of distribution belongs to @Lexlatin.
