- Total deal volumes involving high growth economies fall back to 2005 levels
- Developed market acquisitions in high growth markets decline 15% since last year
- Acquisitions in China fall to lowest levels in seven years
Declining confidence in the global M&A market is starting to impact deal activity levels across the emerging economies, according to KPMG’s latest High Growth Markets International Acquisition Tracker. However, while the outlook remains gloomy for the vast majority, corporates in the Far East appear to have burgeoning enthusiasm for M&A, and are firmly setting their sights on targets in developed markets.
Analysis of global deal activity for the first six months of 2012 indicates that, barring the trough of 2009, 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 a low of 936 in the second half of 2005.
David Simpson, Global Head of M&A, commented: “While there may be a perception that the stagnation of the M&A market is solely a mature market issue, this is a clear demonstration that the ongoing slowdown is really starting to affect the high growth markets too. Both the volume and value of corporate transactions are down across the board, and overseas markets that were previously seen as highly attractive investment destinations for developed economies have lost some of their shine.”
He continued: “However, while confidence for many is at a new low, China and Japan are using this as an opportunity to grasp the nettle in actively pursuing outbound deals in developed markets. Brazil also continues to be a favoured acquisition target, but these represent rare bright spots in an increasingly difficult environment.”
Looking at the distinction between in- and outbound deals, the volume of D2H (developed to high growth) deals was also at its lowest since 2005, with 661 transactions in total. Similarly, H2D (high growth to developed) deals were down to 2006 levels (203 deals), while the proportion of H2H (high growth to high growth) deals was also at its lowest since 2006 (115 deals).
Chinese corporates becoming more acquisitive
The number of D2H deals involving Chinese targets fell to a seven-year low, with 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 peak of H2 2007. Interestingly, there were no such deals involving a UK-based acquirer, compared to an average of four deals every six months in previous years.
Conversely, 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, and suggests that Chinese companies are increasing their appetite for overseas acquisitions, even if their attractiveness as targets is declining.
“We see continued strength in Chinese outbound transactions,” commented David Simpson. “In addition to the headline-grabbing deals undertaken by big State Owned Enterprises such as CIC’s acquisition of a stake in Thames Water, we are also seeing increasing activity with industrial market players seeking to acquire technology and overseas distribution capability.”
Japan ramps up international push
Another notable bright spot was Japan, which saw outbound D2H deals reach a joint record high for the last seven years of 65 deals. South and East Asia, too, saw an increasing level of M&A activity, both inbound and outbound.
David Simpson said: “2012 has seen Japan really ramp up its push for international assets, as evidenced by Glory snapping up the UK’s Talaris Topco in a $1bn deal earlier this year. Additionally, the ongoing crisis in the Eurozone, coupled with low asset values in the US have encouraged countries which are not traditionally seen as acquirers, such as Indonesia and Thailand, to take their war chests and go bargain hunting in developed markets.”
UK mirrors muted global picture
Activity involving UK corporates mirrored the rather muted picture seen across the globe. There were a total of 51 deals involving UK firms acquiring targets in high growth economies – down from 72 in H2 2011 and 66 in H1 2011. Similarly, there were only 16 deals involving a high growth corporate acquiring a company in the UK – a steady fall from 25 in H2 2011 and 20 in H1 2011.
The most common acquirer of UK assets was Russia, with a total of four deals, with corporates from India and South and East Asia undertaking three deals respectively. Interestingly, Chinese corporates only made 1 such acquisition in the UK. Conversely, the most popular destinations for UK trade buyers acquiring companies from overseas include Central and Eastern Europe, India, South America (excluding Brazil) and Sub-Saharan Africa (excluding South Africa), all of which saw seven deals respectively.
David Simpson concluded: “It would be wrong to interpret these findings as a sign that the UK is dis-investing in high growth markets or even falling out of love with particular territories. Rather, the low number of deals involving UK firms is simply symptomatic of the depressed market generally.”
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About the High Growth Markets Tracker (HGM Tracker):
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.
For more information, please contact:
Katy Broomhead
KPMG Corporate Communications
Tel: 0161 246 4623 / 07824 537963
Email: katy.broomhead@kpmg.co.uk
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 over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 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.
