Reduced Appetite for Emerging Markets Deals
Corporate acquisitions involving emerging markets has dropped in volume after two years of growth, KPMG International’s latest Emerging Markets International Acquisitions Tracker (EMIAT) shows.
KPMG’s Emerging Markets International Acquisition Tracker (EMIAT) was established in 2003. It includes data from completed transactions where a trade buyer has taken a minimum five percent shareholding in an overseas company. EMIAT looks at deal flows between 15 developed economies (or groups of economies) and 13 emerging economies (or groups of economies).
Activity by buyers from both developed markets and emerging markets tailed off in the last six months of 2011, after two years of gradual growth since January 2009.
705 developed-to-emerging (D2E) deals completed between July and December 2011, compared to 755 during the previous six months. In terms of emerging-to-developed deals (E2D), there were 201 during the second half of the year, compared to 214 six months previously.
David Simpson, Head of Global M&A at KPMG and a partner in the UK firm, comments: “The fall in emerging markets activity reflects the wider downturn in deal volumes in the second half of 2011. The greater constraint on the corporate sector has been lack of confidence, rather than lack of cash, and has affected emerging and developed economies alike.”
The US accounted for the most D2E acquisitions, although the figure of 126 deals between July and December 2011 was less than the 158 deals recorded during the first six months of the year. The UK’s tally of D2E deals rose over the same period, from 66 to 70 deals, but volumes fell in France and Germany.
The drop in overall D2E deals reflects the wider fall in global deal volumes between the first and second half of 2011, from 2715 to 2442.
Asia-Pacific is the most popular location for D2E targets.
China and South East Asia were the most active target markets for D2E acquisitions, albeit at lower levels than H1 2011. There was mixed performance among the BRIC economies, however, with only India showing an increase in companies being acquired by buyers from developed markets, from 54 in the first half of 2011, to 62 in the latter half.
Interestingly, Africa continued to be an increasingly popular market for buyers. South Africa reported the highest level of D2E activity since 2007; Sub-Saharan Africa increased deal volumes to 25, the highest for three years, and the Middle East and North Africa (MENA) reported a record volume of 34 deals involving MENA targets
E2D deals unable to gain market share
The proportion of E2D deals, where emerging market buyers acquired developed market targets, to D2E deals remained consistent throughout 2011 at 22 percent.
The US, UK and Singapore were the most attractive targets for E2D acquisitions. In the UK, the number of E2D deals actually increased by 25 percent, from 20 to 25, between H1 2011 and H2 2011. This is only three fewer than the record 28 deals that took place during the first half of 2008.
Smaller European countries (represented by Europe Other in the statistics) also proved increasingly popular hunting grounds for E2D acquirers, with the number of deals rising from 13 to 22 between the first and second halves of 2011.
India overtakes China
India purchasers are now the most active players in E2D acquisitions, with 37 deals during H2 2011. This is five more than Chinese buyers over the same period.
Malaysia also reported an increase in acquisitions, with Malaysian companies responsible for 26 deals in developed markets during the second half of 2011, up from 17 during the previous six months. South East Asia in general also saw a small rise, from 34 to 37, but every other emerging region apart from Brazil and the rest of South America saw the number of E2D deals fall.
Deals between emerging markets continue to fall
The volume of deals between emerging acquirers and targets (E2E) continued to fall, reaching a similar level to 2006. The proportion of E2E deals to overall EMIAT deals also fell to 12 percent during H2 2011 – the lowest level since 2006/2007.
The small proportion of E2E deals is perhaps not surprising, but it is less clear why that proportion is continuing to fall.
Russian companies were the busiest emerging markets acquirers, completing 31 acquisitions between July and December 2011. However, this is down on the 35 Russian acquisitions during the first half of the year. In China, the number of E2E deals fell from four to two over the same period, from 15 to nine in India and from 12 to eight in Brazil.
While it remains to be seen whether we will see deal volumes rebound, Simpson comments: “Emerging economies are continuing to grow much faster than the developed world so we might expect deal volumes to be driven by cash rich emerging market corporates and companies from developed countries seeking growth opportunities. Confidence has been holding both sides of the equation back but pressures are increasing which must ultimately lead to higher deal flow.”