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. The latest study shows that just 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.
“These numbers should come as a firm ‘buyer beware’ to any company thinking of following the herd to Asia,” says John Kelly, head of transaction services at KPMG. “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 adds: “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