Global companies are doing little more than ‘flipping a coin’ when it comes to enhancing value through doing deals in the emerging markets of the Asia Pacific (ASPAC) region, according to KPMG’s latest global M&A study ‘A new dawn’. The study of more than 150 respondents found that the days of doing deals which were guaranteed to add or at least maintain value have come to an abrupt halt; 40% of ASPAC deals are now destined to failure, with a further 20% being of only neutral value to the acquirer.
In earlier surveys, the M&A study found that the rapid development of the ASPAC market was rewarding early buyers with an advantage. In fact, the proportion of revenue-enhancing deals tripled from 2003-2005 to 2005-2007 (12% to 36%). But that growth has slowed down as quickly as it started, and in the latest study, 40% of deals added value.
This is a clear sign that sellers across the Asia region have rapidly become wise to how much value they can extract for their businesses from Western buyers looking to enter these emerging markets.
John Kelly, head of transaction services, KPMG, said: “These numbers should come as a firm ‘buyer beware’ to any company thinking of following the herd to Asia. What we have found is that there is a huge challenge in pricing in a high growth market. Businesses, particularly in Western economies, are looking to invest in top line growth but do not employ rigorous methods to factor in major market growth and particularly in planning for the revenue synergies in order to justify the price.”
Sector leaders from financial services to natural resources are preparing to pay top dollar to buy businesses in these countries, but the KPMG report found that this is often without paying nearly enough attention to the revenues these potential acquisitions can generate.
The survey found that sectors as diversified as healthcare, insurance, construction and energy have all tried to buy growth through doing deals in the ASPAC region, and yet, in many cases, the cost and revenue synergies envisaged only partly materialised. In particular, three mining companies who responded said they did not achieve any of the cost or revenue synergies they expected.
Kelly added: “While acquirers are falling over themselves to buy up key assets, they are often using the wrong business models to value targets and in many cases risk their deals being perceived as all about paying now for jam tomorrow by a sceptical investor and analyst community and therefore not being value enhancing
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For further information please contact:
MHP Communications
Lucinda Kemeny / Katie Hunt / Giles Robinson
Tel: 0203 128 8758 / 8794 / 8788
Email: lucinda.kemeny@mhpc.com/ katie.hunt@mhpc.com/ giles.robinson@mhpc.com
Survey Methodology
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The objective was to ascertain the proportion of deals that enhanced shareholder value and understand experiences and processes undertaken by corporates and PE firms related to post-deal management.
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The fieldwork was conducted by Lighthouse Global between March 2010 and September 2010 via telephone interviews. The 162 Corporate participants were taken from a global sample of companies who had conducted deals worth over US$75 million between 2007 and 2010.
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Further research was conducted using share price information supplied by Evalueserve on the top 500 deals of a sample of over 3500 using the same criteria as above. Each deal was categorized as having enhanced, reduced or left shareholder value unaffected. For each deal, a relative measure of change in acquiring company share price was taken at key intervals during a two-year period. This period ranged from one year pre-deal announcement to one year post-deal announcement. This share price information was then compared with the overall trend in the relevant industry segment. To preserve the confidentiality and anonymity of survey respondents (and in accordance with standard market research guidelines) analysis of the survey findings was carried out by Lighthouse Global and not by KPMG International or KPMG member firms.
About KPMG
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals 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. KPMG International provides no client services.
