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Latin America has become a hot spot for U.S. deal makers

New data shows U.S. executives are increasingly eyeing Brazil and Mexico as hot deal-making destinations.

U.S. executives named Brazil and Mexico, the two largest economies in Latin America, among their five most popular destinations for deal making, according to a new survey.

The data from Ernst and Young (EY) found that the pick-up in deals in Latin America was part of a marked “geographical shift in capital allocation.”

Brazil emerged last year from its worst recession on record and EY analysts said that the ongoing recovery has made it an attractive destination for executives in the United States looking to expand business through mergers and acquisitions. That has been especially true as many U.S. public companies boast lofty valuations after the U.S. stock market’s nine-year bull run.

Brazil also removed former left-wing President Dilma Rousseff, who favored large subsidies and spending programs for the poor, from office in 2016 in favor of market-friendly Michel Temer. Temer has rolled back a number of welfare programs in the country and proposed further cuts to spending, including the country’s large pension system, driving his approval rating to 5%, polls show.

“Over the last 12 months we’ve seen a move in Latin America towards market-friendly regimes, the privatization of key industries, and other pro-business policies. This environment has bolstered the confidence of investors who were previously on the fence about deploying capital in the region,” said Bill Casey, EY’s Americas vice chair of transaction advisory services, in a statement. “US executives see this progress and recognize the opportunity for growth in the region, and the surge we see in Latin American M&A appetite shows how U.S. businesses are keen to make up for lost time.”

Deal-hungry execs could be in for a surprise, however, after the country’s October presidential elections. Former President Luiz Inacio “Lula” da Silva, who headed the left-wing Workers Party before announcing Rousseff as his heir apparent, remains atop presidential polls. Da Silva has been jailed on corruption charges, but remains eligible to seek the presidency until a ruling by the country’s Supreme Court.

Similarly, Mexico’s Andres Manuel Lopez Obrador holds a strong lead over competitors in polling of his country’s presidential election, which will be decided in July. Lopez Obrador has styled himself as a hard-left champion of the people, vowing to roll back reforms put in place by current President Enrique Pena Nieto.

The company’s survey found that cross-border mergers and acquisitions (M&A) activity is the most common theme expected by U.S. execs for the next 12 months. The respondents noted regulation and governmental intervention as the most commonly expected risk to potential deals.

“Regulatory considerations are a permanent fixture in the investment landscape regardless of which region is being targeted,” Casey said. “However, the potential rewards of M&A appear to outweigh cross-border concerns in today’s global environment.”

Dion Rabouin is a markets reporter for Yahoo Finance. Follow him on Twitter: @DionRabouin.

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