As the US and Europe continue to struggle to avoid a double dip recession, several Latin American nations are enjoying a more positive outlook and the increased M&A activity that comes with it. So why are investors and Western businesses so keen to secure a presence in Latin America and what do dealmakers need to consider before moving into this market?

Brazil is well and truly on the map as a fast-emerging market, alongside other hot prospects in the ‘BRIC’ group, which is made up of Russia, India and China. Alongside the economic growth, a steady stream of inbound and outbound mergers and acquisitions have been taking place, largely in the energy, natural resources and financial sectors.

Mexico is also among the major growth prospects in Latin America, with 2011 economic growth hitting 3.81 per cent and growth in 2012 expected to stand at a strong 3.57 per cent. Colombia, which has a history of associations with violence, poverty and narcotics, is starting to emerge as a serious global contender. Its growing middle classes are proving to be avid consumers and on the streets of Bogota you are now more likely to see luxury cars than gun crime.

In light of the region’s ability to buck the trend for economic slowdown, it’s not difficult to see why Western firms are flocking to the area and why Latin American businesses are keen to move into other lucrative markets that were previously unattainable.

Commodities are a major driver of M&A activity in the region as Latin America is rich with natural resources at a time when China and India need all they can get their hands on to fulfil their growth potential. Brazilian commodities firms have realised this and have been expanding through M&A. Local oil firm Braskem, for example, took hold of an opportunity to buy up Dow Chemical’s polypropylene interests when the US giant decided to reorganise its business. This is an example of how the slowdown in the US and Europe is providing major growth opportunities for prosperous and ambitious Latin American firms.

Inbound M&A is just as strong and Colombia is proving a popular choice for expansion for Western brands. Private consumption in Colombia was behind 80 per cent of the country’s strong economic growth in the second quarter of 2011, with the commercial sector reporting a 7.2 per cent year-on-year expansion. Construction is also reaping the benefits of the new Colombia, expanding 8.8 per cent year-on-year during the same period.

When embarking on an M&A deal in Latin America, it is important to undertake thorough due diligence and invest in legal expertise and talent on the ground to avoid problems. Although this is the case with any transaction in any locale, regulatory idiosyncrasies and political complications can make doing deals in the region more complex. Indeed, experts note that having local insight is vital in understanding not just the regulations and bureaucracy imposed, but how these are actually applied. For example, some regulations will not be officially recorded, but will be strictly applied to a deal; whereas another regulation that is officially recorded in writing will be overlooked completely. It is these nuances that can cause headaches for novices without the proper local knowledge.

Any firm looking to gain an advantage when striking an M&A deal in the region should look at the factors that drive deals locally. Legal developments should be monitored and dealmakers need to familiarise themselves with foreign investment protection regimes. Other key factors can include public disclosure requirements, corporate governance and potential for litigation.

Providing dealmakers go into Latin America with their eyes open, while paying attention to individual countries’ specific requirements and political and economic nuances, the region presents some exciting growth opportunities.