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Developed countries leading the M&A pack

Developed countries leading the M&A pack

There is a steady climb in M&A deal, according to KPMG’s recent surveys. Transaction activity, however, is still well below historical peaks.


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In the first half of 2009 there was a precipitous drop in deal volume, but since then there has been a steady climb in transaction activity and the latest KPMG Emerging Markets International Acquisition Tracker (EMIAT) confirms this.

Emerging markets remain a highly attractive target for trade buyers from the developed regions, with the number of deals rising for the fourth consecutive half-year. In the six months to 30 June 2011, completed purchases totaled 693. Despite the upward trend, this is still 16 percent below the peak of 2008. There were over three times as many D2E (developed to emerging) deals as E2D (emerging to developed) deals. E2E (emerging to emerging) deals are running at just over half of E2D and are at their lowest level since 2006.

Shawn McCarthy, Partner, M&A and Financing, KPMG in Russia and CIS, said: "Analyzing the Developing to Emerging deal flow (D2E) it is clear to see that Russia as an investment destination for sits in 6th place historically for the last 6 years.  In the last 18 months, Russia as an emerging market remains in 6th place, but its overall importance has increased to 8% of the emerging market deals. Emerging markets ranking ahead of Russian in terms of M&A deals closed include, in order, South East Asia, China, Central & Eastern Europe, South America (excluding Brazil), and Brazil. Over the last 18 months, targets in South East Asia and South America have posted the highest increases in D2E deal volume with increases of 3.1% and 2.3%, respectively. Russia has shown a modest growth in D2E deal activity up 0.8% over this period; however D2E deal volume from the rest of the CIS has been flat."

"Although analysis of E2E deal flow (Emerging Market acquirers of targets in Emerging Market) shows that Russia is the 7th ranked Emerging market destination amongst its emerging market peers, Russia is the № 3 acquirer in Emerging Markets over the last 6 years. Moreover, Russia has been the leading acquirer of Emerging Market targets amongst its peers in the last 18 months. The results of the survey accurately reflect the dynamics of Russian cross-border M&A as Russian corporates have emerged as active participants in international sale processes, especially in close-to-home markets in Central and Eastern Europe and other CIS countries. I would expect this consolidation trend to continue as leading domestic companies seek out strategically compelling transactions at reasonable and opportunistic valuations in familiar markets within their geographic sphere of influence," Shawn McCarthy added.

Deal volume between the developed and emerging economies analyzed in the EMIAT has remained fairly constant, with 913 transactions in H1 2011 compared with 926 at year end 2010 and 922 a year ago. Despite being down on the heights of 2008 (1095 transactions in H1), the latest figures are over 26 percent up on the low of 2009.

Commenting on the findings, David Simpson, Global Head of M&A at KPMG and a partner in the UK firm, said: “Developed country interest in emerging markets has continued to increase, supported by strong corporate balance sheets prepared to pay for attractive opportunities. The opposite flow, from emerging countries to developed markets, has suffered from concerns about economic conditions. The short-term outlook is unclear but the continuing rise of the major emerging markets will fuel many more deals over time.”

Buyers from developed economies have continued to focus on Brazil, the rest of South America and South East Asia – with transactions in these geographies at record levels.

US and UK buyers have shown renewed interest in the developing markets in 2011, each continuing to rise with volume levels back at their six year average. Japan, Germany, Australia and Canada continue to rise and are at or above previous levels – Japan and Canada at 61 and 82 deals respectively, have hit their highest ever level in the eight years of the EMIAT.

After a short-lived surge in the first half of 2010, deals from E2D have dropped by 15 percent over the past year and are now back to 2006 levels. It’s possible that buyers in these markets have been deterred by the financial problems in the Eurozone, as the number of deals with the smaller European countries (defined as a single group) has plummeted from 40 to 13 in just six months. However, Italy, Spain and France reported flat volume levels and Germany and the Netherlands showed increases

As usual, US companies proved the most popular targets, accounting for 21 percent of all E2D transactions. The attractiveness of US businesses may be due to the strength of their brands, technology and intellectual capital, giving emerging nations a competitive edge that has already been tested and proven.  The United Kingdom.showed a slight increase.

Indian purchasers have, not for the first time, overtaken their Chinese counterparts in clinching the highest number of acquisitions in developed markets. The other emerging countries or regions which increased their cross-border purchases were Russia, South Africa, South East Asia, Central America and the Caribbean.

The deal volume between emerging countries has remained broadly flat since 2009. Total E2E transactions remains comparatively low, representing only 11 percent of all the deals featured in the EMIAT.

As David Simpson explains, “This number is unsurprising given that organizations in emerging countries are less likely to develop through acquisition as their organic growth prospects are often so good. The relatively immature state of the emerging markets also means that there are simply fewer companies to buy.”

While it remains to be seen whether we will see deal volumes at pre-crisis levels in the near future, the current EMIAT data suggests that there is still the appetite for the right deal, in the right market, at the right time.

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