Developed market acquisitions in high growth markets decline 15 percent since last year. Acquisitions in China fall to lowest in seven years H2D (high growth to developed) deals back at 2006 levels.
KPMG International’s latest High Growth Markets International Acquisition Tracker (formerly Emerging Markets International Acquisition Tracker) shows the volume of cross-border corporate acquisitions involving high growth markets has dropped to its lowest level since 2005, with 979 deals in the past six months compared with 936 in H2 2005.
The volume of D2H (developed to high growth) deals was at its lowest since 2005 (barring the trough of 2009), a sign that global deals markets are continuing to struggle in the face of declining corporate confidence. Similarly, H2D (high growth to developed) deals were down to 2006 levels and the proportion of H2H (high growth to high growth) deals was also at its lowest since 2006 (12 percent of all cross-border deals involving high growth markets).
David Simpson, Global Head of M&A, commented: “Our latest figures show that the M&A slowdown is not only a mature market issue - it is affecting the high growth markets, too. China and Japan are very active in outbound deals and Brazil is a favoured acquisition target but these represent bright spots in an increasingly difficult environment.”
The number of D2H deals involving Chinese targets fell to a record low for the past seven years of 75 deals in the first half of 2012. This represents a 25 percent fall on the 100 deals completed in both H1 and H2 2011 and is exactly half the number of deals completed at the highpoint in H2 2007.
However, the number of Chinese companies acquiring targets in developed markets rose to 39 in H1 2012. This figure is at the top end of Chinese H2D performance over the past seven years. It suggests that Chinese companies are increasing their appetite for overseas acquisitions, even while their attractiveness as targets declines.
“We see continued strength in outbound deals,” said Honson To, Head of Transactions & Restructuring, KPMG in China. “In addition to headline grabbing transactions done by big State Owned Enterprises in energy and infrastructure, we see increasing activity with industrial market players seeking to acquire technology and overseas distribution capability.”
The picture in Brazil is almost the exact opposite of China. A high level of inbound deals contrasts with a record low for the past seven years in the number of Brazilian corporates acquiring companies overseas.
The volume of inbound Brazilian D2H deals rose to a record high of 81, a 59 percent increase on the previous six months, whereas there were just two Brazilian H2D acquisitions over the same period, the lowest figure since 2006.
The number of D2H deals involving South American targets excluding Brazil also rose, to 74 – one of only three territories to report any kind of rise. The other was the CIS (Commonwealth of Independent States), which saw deal volumes rise from 15 to 18 over the past six months – still some way off the 41 recorded as recently as H2 2009.
In terms of activity, the most active dealmakers are corporates in the US, which accounted for 16 percent of all D2H deals in the first half of 2012, although activity was the lowest for the last seven years.
The UK saw a similar dip in outbound D2H activity, with deal volumes falling from 72 to 51 over the past six months.
A notable brightspot, however, was Japan, which saw outbound D2H deals reach a joint record high for the last seven years of 65 deals.
“Over the past year or so, Japanese companies have been showing an increasing interest in M&A in high growth markets, particularly in China, India and Southeast Asia,” commented Arihiro Yanagisawa, Head of M&A, KPMG in Japan.
“The Eurozone crisis and low asset values in the US have encouraged countries which are not traditionally seen as acquirers, such as Indonesia and Thailand, to go bargain hunting in developed markets,” commented Vishal Sharma, Head of M&A, KPMG in Singapore.
The fall in the volume of both D2H and H2D deals is mirrored by a decline in H2H deals, which fell from 134 to 115 over the past six months. Notably, there were just eight deals involving Chinese targets, the same as H2 2011 and a joint record low for the last seven years. India, too, remained close to a record low with just seven H2H deals involving Indian targets. Similarly, the number of Indian companies acquiring in developed markets fell to 23, the lowest level since 2005 (barring 2009) and the second lowest figure in the last seven years.
“Indian acquirers have become cautious of doing deals overseas as they don’t want to stretch their finances. On the other hand, global organizations continue to do deals in India in select sectors like consumer, logistics, retail, pharmaceutical, chemical, engineering, as these sectors continue to grow at a healthy rate of 10-plus percent,” commented Vikram Utamsingh, Head of Transactions & Restructuring, KPMG in India.
Overall, more than two-thirds of deals in the Tracker were accounted for by companies from developed markets looking for acquisitions in high growth markets (68 percent). The proportion of H2D deals remained largely static at around 20 percent, and the proportion of H2H deals fell to just under 12 percent.
KPMG’s High Growth Markets International Acquisition Tracker (formerly Emerging Markets International Acquisition 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 HGM Tracker looks at deal flows between 15 developed economies (or groups of economies) and 13 high growth economies (or groups of economies)*. The HGM Tracker is produced every six months to give an up-to-date look at cross-border merger and acquisition activity, with the current edition featuring deals between January and July 2012.
All raw data is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.