• Service: Advisory, Transactions & Restructuring, Transaction Services
  • Type: Press release
  • Date: 4/4/2013

Global M&A activity still weak, but high growth markets more resilient 

  • Developed-to high-growth-market (D2H) acquisitions fall to 2009 levels
  • High-growth-to-developed-market (H2D) deal volumes leveling out
  • Chinese buyers particularly active, with 81 H2D deals in 2012

KPMG International’s latest High Growth Markets International Acquisition Tracker (formerly Emerging Markets International Acquisition Tracker) shows that acquirers in developed markets are still cautious about pursuing cross-border M&A opportunities in high growth markets.

The volume of developed-market-to-high-growth-market (D2H) transactions in H2 2012 fell to 619. This is a 12 percent decline on the 707 deals completed in H1 2012; despite widespread industry expectations that the D2H deals market was over the worst of the downturn.

In contrast, high-growth-market-to-developed-market (H2D) deals appear to be stabilizing. There were 216 H2D transactions over the same period, slightly lower than H1 2012 but very much in line with H2D market performance over the past two years.

Tom Franks, KPMG’s Global Head of Corporate Finance, commented: “Developed markets are showing more stable levels of confidence domestically, but we are not seeing that reflected in the D2H cross-border deals market. Companies in developed markets are sticking with what they know, rather than seeking out opportunities in high growth markets.”

Buyers in developed markets cautious about high growth opportunities

Cross-border transactions involving European acquirers were particularly hit hard. German and Spanish D2H deal levels, for example, both fell by around 33 percent in H2 2012, while D2H deals from the Netherlands dropped by almost 66 percent and Europe (other) deals by over one-quarter.

Even those developed markets that were relatively stronger in D2H deals over H2 2012, such as the UK, USA, and Hong Kong, struggled to rise above 2008 levels in absolute terms. The USA, for example, saw the most deals in H2 2012, with 102. While this was 8 percent less than H1 2012, it was the lowest six-month total since H1 2005.

Japan was a bright spot. Japanese acquirers completed 73 D2H deals – its highest level since 2005 and perhaps a sign that the market is bouncing back after the trauma of the tsunami and global downturn.

Confidence levels more resilient in high growth markets

In contrast to the continuing decline in D2H transactions, H2D deal confidence seems to be more robust. The 216 H2D deals in H2 2012 are very much in line with the volume of deals consistently achieved over the past two years. This suggests that the worst is over and the market has bottomed out, even if absolute volumes are still low.

The US was the most popular target market, with 42 H2D deals involving US targets. This was eight less than H1. Most other developed markets were either flat or also showed a slight reduction in H2D deals. The UK, however, attracted its highest volume of H2D deals since 2006 – a sign of the opportunities still available for ambitious acquirers.

Commented Tom Franks: “The overall H2D market appears to be leveling off in the way we thought D2H deals would, but didn’t. It suggests the worst might be over for H2D transactions. High growth market companies are continuing to diversify their portfolios outside their home markets, albeit at a much lower level than they were four of five years ago.”

Chinese acquirers were the busiest in 2012, in terms of H2D deals. Over the course of the year, Chinese corporates completed 81 H2D acquisitions, the second highest annual volume since 2005. Only 2010 saw more Chinese H2D deals completed, with 92.

India was the next most active H2D market, with 29 deals – three more than H1 2012. South America (ex. Brazil) was another strong performer, with the volume of H2D deals almost doubling between H1 and H2 2012.

Developed markets a priority for high growth buyers

The leveling off in H2D transactions was not reflected in the volume of high-growth-market-to-high-growth-market (H2H) deals in H2 2012. The total volume of H2H deals completed was 100 - 25 percent fewer than during H1.

The contrast between H2D and H2H transaction volumes suggests that companies in high growth markets are taking advantage of the on-going jitters in developed markets to prioritize H2D opportunities over H2H opportunities.

Even the much vaunted BRIC economies (Brazil, Russia, India and China) could not breathe life into the H2H market. Of the four, only Russia attracted a significant number of H2H acquirers, with 30 deals completed, while in an unprecedented slump, there were no H2H deals at all involving targets in either Brazil, India or even China.

Only one of these markets – China – has ever reported zero H2H acquisitions before, and that was back in the first half of 2005. It is also the first time that three high growth markets have not seen any acquisitions during the same six-month period, never mind three of the supposedly fastest growing global markets.

Overall deal volumes back at 2009 levels

The overall volume of high growth market deals during the second half of 2012 was 935. This is the lowest volume of deals reported since H1 2009, and before that, 2005. Of that figure, the proportion of D2H deals and H2H deals were both slightly down, while the proportion of H2D deals increased by almost 2 percent between H1 and H2 2012.

“Overall transaction levels were slightly disappointing,” says Tom Franks. “We would have hoped to see D2H deal volumes leveling off by now, but it doesn’t appear to be happening. Developed market companies are still cautious about chasing opportunities overseas, and that’s reflected in these figures. On the other hand, companies in high growth markets appear to be more prepared to capitalize on the global situation to invest in developed markets.”

For further information, contact:

Julie Wilson

KPMG International

+1 416 777 3460

About KPMG International:

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 156 countries and have more than 152,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About the High Growth Markets Tracker:

KPMG’s High Growth Markets Tracker (formerly Emerging Markets International Acquisitions Tracker) 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)*. The Tracker is produced every six months to give an up-to-date overview of cross-border merger and acquisition activity, with the current edition featuring deals between August and December 2012. All raw data is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.

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HGM Tracker

The HGM Tracker looks at deal flows between 15 developed economies (or groups of economies) and 13 high growth economies (or groups of economies).

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