KPMG International’s latest study shows that the volume of corporate acquisitions involving emerging markets has dropped.
According to KPMG International’s Emerging Markets International Acquisitions Tracker (EMIAT) 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.
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.
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.
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.
Shawn McCarthy, partner, M&A and Financing, KPMG in Russia comments: “Against the backdrop of the financial turbulence in the Eurozone and the Russian presidential elections, deal volumes (number of deals) in Russia are down slightly over the prior year. Deal volumes from Developed countries into Russia remain depressed over the prior 3 years with the largest decline in Q2 ’11 – arguably attributable to the reasons below. Transactions driven by companies in developed markets into Russia largely represent strategic buyers attracted to the longer-term growth opportunities in Russia driven by comparatively greater demand in the Russian economy. Anecdotal evidence over the last six months sees continued interest in primary manufacturing/production and natural resources. Though overall volumes decreased significantly in 2011 versus the prior two years, acquisition interest from Russian companies in developed markets remains, though arguably instability in Europe has also given Russian buyers a reason for pause. Still, Russia acquisition interest in other Emerging market economies has been exceptionally resilient with Russian companies accounting for close to one-third of overall E2E deals. Given the increasing interests in expansion in “closer-to-home” markets within the CIS and CEE, Russian companies continue to consolidate positions in emerging economies driven by expanding its access to natural resources or capturing access to new markets. Though the next few months will provide greater clarity on the second-half of 2012, we are expecting improvement in the second half of the year, subject to relative stability in the Eurozone and an increase in capital markets activities as Russian companies look to listing on public-markets for capital”.
About the study
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 picture of cross-border merger and acquisition activity, with the current edition featuring deals between January and June 2011.
Established in 2003, EMIAT includes data from completed transactions where a trade buyer has taken a minimum five percent shareholding in an overseas company. All raw data is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.