According to KPMG International’s latest High Growth Markets Tracker study, U.S.-based companies decreased mergers and acquisitions (M&A) activity in emerging and high-growth markets in the second half of 2013 compared to the first half of the year.
Developed-to-high-growth market (D2H) deal volumes are also declining.
The semi-annual KPMG International study, which tracks completed deals in which an acquirer took at least a five percent shareholding interest, found that U.S. companies completed 98 emerging and high-growth market acquisitions in the second half of 2013, compared to 122 in the first half of 2013. Overall, D2H deal volume dropped 11 percent – from 575 in the first half of 2013 to 512 in the second half of 2013.
“With economic growth slowing and political unrest in some emerging markets, companies in developed markets are shying away from cross-border acquisition targets,” said Mark Barnes, national leader of KPMG’s U.S. High Growth Markets practice. “Although regions such as Central America and Europe present access to new consumer populations, and additional growth opportunities exist in other fast-growing emerging markets, investors are playing it safe by staying on the sidelines for now to avoid the risks associated with expanding their organizations’ global footprint.”
Geographically, the most popular targets for U.S. companies in the second half of 2013 were:
- Central America and the Caribbean (17)
- Central and Eastern Europe (15)
- South American countries excluding Brazil (14)
- Brazil (13)
- India (12)
- China (8)
South and East Asia (81) and Central and Eastern Europe (79) were the most popular targets for D2H deals overall.
“Although domestic confidence in North America and Western Europe has risen recently, we are not seeing that confidence reflected in the developed-to-high-growth deals market. Overall economic conditions have been improving, but given the fragility of the global marketplace, fluctuating stock prices, and increased interest rates to battle inflation in several emerging markets, acquirers in developed countries are deciding to hold back from pursuing cross-border M&A for now,” said Phil Isom, head of KPMG Corporate Finance LLC.
High-Growth-to-Developed (H2D) Deal Volumes Rise
Globally, H2D deal volume increased seven percent – from 177 acquisitions during the first half of 2013 to 190 in second half of 2013. U.S. companies remained the most popular targets for emerging and high-growth market companies with 36 acquisitions made in the United States in the second half of 2013, up from the 33 deals completed in the first half of 2013.
Organizations from South and East Asia (10) and Central America and the Caribbean (9) accounted for the majority of acquisitions made in the United States in the second half of 2013. Organizations based in China (51) and South and East Asia (36) were the top acquirers in H2D deals in the second half of 2013.
“H2D transactions are beginning to rise,” said Barnes. “We are seeing a trend towards organizations in high growth markets acquiring companies in developed markets in order to diversify their portfolios, with the United States remaining attractive to investors due to the perceived stability of the North American market and predictable growth within the region.”
High-Growth-to-High-Growth (H2H) Deals Continue to Drop
In the second half of 2013, there were 108 total H2H deals, down from 120 in the first half of 2013. The Commonwealth of Independent States was the most popular regional target, registering 19 inbound deals, according to the KPMG study. Russia was the leading emerging market acquirer with 28 deals.
About KPMG’s High Growth Markets Tracker Study
The study analyzed deal flows between 15 “developed” economies or groups of economies and 13 “emerging” and “high-growth” economies or groups of economies. Established in 2005, the study includes data from “completed” transactions where a trade buyer has taken a minimum 5 percent shareholding interest in an overseas company. The study is produced every six months to give an up-to-date overview of cross-border M&A activity, with the current edition featuring deals between July and December 2013. All raw data within the study is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.
About KPMG LLP’s U.S. High Growth Markets practice
KPMG’s High Growth Markets practice helps companies navigate the complex challenges and risks associated with inbound and outbound investment and capitalize on growth opportunities. The practice provides audit, tax and advisory services to U.S.-based companies in their pursuit of outbound investment opportunities in high-growth markets such as China, India, Korea, Brazil, Russia, Mexico, ASEAN, Africa and beyond, and to high-growth market-based companies with inbound investment interest in the United States.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.