For the purposes of the EMIAT, trade buyer instigated deals are monitored between a basket of 12 developed economies and a basket of 11 emerging, high growth economies, using data sourced from Zephyr.
The number of Emerging-to-Developed (E2D) deals registered in the second half of 2009 stood at 102, representing a strong bounce back from the 78 recorded in the first half of 2009. By contrast, the number of Developed-to-Emerging (D2E) deals fell to 216; making it four consecutive six month periods during which that figure has fallen.
The net result of this is that E2D deals now represent 47 percent of the D2E totals – the closest the two sets of number have ever been since the EMIAT began. It also means that D2E deal activity has now more than halved from its high point of 463 deals in the latter half of 2007.
Commenting on the findings, Ian Gomes, Chairman of KPMG’s High Growth Markets practice for KPMG in the U.K, said: “Much has been said recently about the way in which the competitive threat posed by the emerging and high growth economies has been accelerated as a result of the credit crisis and ensuing recession. These figures bear that out. The emerging economies – and the trade buyers within – have emerged quicker and more strongly from the problems which continue to haunt Western economies. The EMIAT shows that the emerging economies were affected by falling deal numbers for just a year. The developed economies have had two years of decline – and we’re not even sure if we’re at the bottom yet.”
“While their decline continues, there are signs everywhere of how E2D activity could be about to really accelerate. Chinese companies are showing greater interest in overseas acquisitions, prospecting for deals and conducting plenty of feasibility studies. Activity out of the Middle East is increasing and this will only accelerate once the local Sovereign Wealth Funds (SWFs) make their move, inspiring others to follow. Amidst it all, the Indian buyers sit relatively quietly at home, waiting for bank lending to begin again as their preference has always been to work with debt rather than equity. If and when that happens, and the acquisitive Indian corporate base rumbles back into life, the gap between E2D and D2E deal values could narrow extremely rapidly.”
After India dominated E2D deals up until 2008, China now leads the way, recording 30 deals in the second half of 2009 after racking up 20 in the first half. By contrast, India registered just 25 deals in the whole year – or one-seventh of the E2D total. The Middle East was the surprise package in the last six months, registering 17 deals having only registered five in the first half of the year.
Gomes suggests that prospects for further deal activity out of India and the Middle East will rely heavily on the actions of their local “hero” businesses. In India, this refers to the big marquee names that are currently pre-occupied with making the deals of the final pre credit crisis days work as they should. Once they return to the deal-making scene, the confidence they inspire should bring plenty of smaller businesses along behind them.
In the Middle East, the same applies to the SWFs. Trade buyers across the region have a huge amount of respect for the M&A expertise now present within those SWFs and will likely crank up their own acquisition activity much further once they see the SWFs lumber into life, effectively indicating they feel that market prices have bottomed out. With that in mind, the coming six months could be critical to see whether those SWFs finally spring into action.
There is also evidence, across all emerging economy trade buyers, of a growing selectiveness over the kind of Western assets they would like to acquire. As Alan Buckle, Global Head of Advisory, explains: “No longer is there an appetite for buying distressed assets in the West purely because they offer a foothold into more developed economies. Buyers are highly aware that they tend to lack the niche management skills needed to turn around such distressed assets and so they now tend to steer clear. Quite simply, some assets will just look too cheap for them to consider. In their place, they would rather buy into well run, established companies which provide the sound base required for overseas expansion.”
Other key findings of the latest EMIAT include:
- Central and Eastern Europe remains the most popular D2E destination with 1081 deals since the second half of 2003 (compared to China’s 1023 and India’s 713). The US is still the most popular E2D destination with 345 inbound deals, compared to 259 for the UK and Germany on 116.
- The most acquisitive nations are the US (1549 D2E deals) and India (404 E2D deals). Australia and Canada are the two countries where the gap between D2E and E2D deal volumes is at its narrowest. The number of E2D deals into
- Australia stands at 76 percent of their D2E total. For Canada, that figure stands at 57 percent.
Emerging Markets International Acquisition Tracker results
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The research analyzed deal flows between 12 selected developed economies – the U.K., U.S., Canada, Spain, France, Germany, Netherlands, Italy, Australia, Israel, Hong Kong and Japan – and 11 selected emerging economies or regions, comprising India, China, Russia, Brazil, South Korea, Vietnam, Macau, South Africa, Nigeria, the Middle East and Central & Eastern Europe.
Only those transactions classed as “completed” between July 2003 and December 2009 – and which saw a trade buyer taking at least a 10 percent shareholding in an overseas company - were included. Deals which involved backing by a private equity firm or other financial institution were not included.
The data was provided by Zephyr – a Bureau van Dijk Electronic Publishing product. ZEPHYR is an information solution containing M&A, IPO and venture capital deals with links to detailed financial company information. It is the combination of M&A data provided by Zephus, and software from Bureau van Dijk Electronic Publishing (BvDEP). Links to complementary company financials and peer reports from BvDEP's product range are integrated for company valuation and benchmarking.
All new deal records are checked by a senior researcher before they are published. Wherever possible all deals are verified against a primary source. Any modifications or updates to existing deals are also checked prior to re-publishing. ZEPHYR contains information on approaching 650,000 deals with approximately over 75,000 additional deals added each year depending on levels of deal activity. Various deal types are covered on ZEPHYR including: M&A activity, IPOs, joint ventures and private equity deals. No minimum deal value is applied; ZEPHYR is an all-inclusive database of all deal sizes. www.zephyrdealdata.com