KPMG International’s latest High Growth Markets International Acquisition Tracker shows that M&A transactions involving high growth markets (HGMs) are not immune to the pressures that continue to hinder overall global M&A activity.
Although there have been suggestions that market confidence and optimism are returning to the deals market, the latest HGM transaction figures do not bear this out.
Developed market acquisitions of targets in high growth markets (D2H deals) were at their lowest level since at least 2009. D2H deals in H1 2013 were 23 percent down on the same period last year and 13 percent down on H2 2012. This is the largest 6-month decline since 2008/2009, when deal volumes plummeted by 32 percent in 6 months.
Tom Franks, KPMG’s Global Head of Corporate Finance, comments, “The last six months have clearly been weak for high growth market deals, but it is part of a global downward trend in M&A activity, rather than a specifically high growth issue. That said, some key high growth markets appear to have been particularly affected. The data suggests that China may be losing its lustre."
Key markets suffering
China, so long in the vanguard of the HGMs, saw a significant reduction in D2H activity, with 69 D2H deals involving Chinese targets in H1 2013, perhaps a reflection of the rising costs of doing business in China. This is 16 percent fewer than the 83 deals completed in H2 2012 and compares to the 100-plus Chinese D2H acquisitions that were being completed as recently as H2 2011 and H2 2010.
The following regions saw a significant fall-off in activity:
- Central and Eastern Europe (CEE): D2H deals involving CEE targets down 25 percent on H2 2012;
- In South America (ex. Brazil): D2H acquisitions declined from 66 to 44; and
- South and East Asia: D2H deal volumes dropped by 19 percent, from 108 transactions in H2 2012 to 88 in H1 2013.
A more positive story was evident in the following regions:
- India: D2H acquisitions were up one over H2 2012 to 45 D2H transactions completed; and
- The Commonwealth of Independent States (CIS): 16 deals completed in H1 2013 was six more than in H2 2012.
High growth acquirers cautious
In contrast to previous periods where a slowdown in D2H activity has been offset, at least partially, by more robust H2D figures (high growth acquisitions of developed market targets), H1 2013 also saw H2D transactions fall to their lowest level since 2005.
The United States is a case in point. There were only 31 H2D deals involving US targets in H1 2013, down from 52 in H2 2012. This is the lowest volume since 2005 and over 50 percent lower than the same period in 2010. Europe (Other) also saw a significant decline, with H2D deals involving Europe (Other) targets down 32 percent in 6 months.
The most active high growth market acquirer of developed market targets was South and East Asia, which accounted for 31 deals in H1 2013, not far off the levels achieved in 2012 and 2011.
Another two important HGMs, however - India and Malaysia - both saw dramatic declines in acquisitions of developed market targets. The number of Indian H2D deals dropped to just 18 in H1 2013 – the lowest level since 2009. Malaysia also saw a record fall, from 24 H2D deals in H2 2012 to 8 in H1 2013 – by far the lowest number of Malaysian H2D deals since the launch of Tracker.
H2H deals back to 2006 level
The disappointing D2H and H2D statistics are mirrored in the latest H2H (high growth to high growth) figures. These show that H2H deals are not immune to the global trends affecting both D2H and H2D deals, with H2H transaction volumes falling back to 2006 levels.
Particularly big declines in H2H deals were observed in the following regions:
- CEE-focused H2H acquisitions: fell by 33 percent between H2 2012 and H1 2013; and
- South America (ex. Brazil): saw a 40 percent drop over the same period.
South and East Asia also saw a 33 percent decline in H2H transactions involving South and East Asian targets. Russia and the CIS were the only markets that saw significant rises in H2H deals as vendors, up by 18 percent and 53 percent respectively since H2 2012. China also saw a small rise, from 7 to 9. In the other three BRIC markets (Brazil, India and China), the volume of H2H acquisitions as acquirers all declined.
“The decline in H2H deals is symptomatic of the general malaise in the global M&A market, rather than a peculiarly high growth market phenomenon,” says Tom Franks. “Until the global M&A market picks up, we’re unlikely to see much improvement in high growth deals either. There have been some positive indicators elsewhere in the economy in recent months, however, so the next 6 months will be vital.”
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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. The Tracker 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 of cross-border merger and acquisition activity, with the current edition featuring deals between January and June 2013. All raw data is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.
About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 156 countries and have 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.