Emerging Economies Back on the Cross-Border M&A Trail

Trade buyers in the emerging economies are already back on the cross-border acquisition trail yet the number of deals instigated by buyers in the developed economies is still in decline, finds KPMG’s latest Emerging Markets International Acquisition Tracker (EMIAT).


For the purposes of the EMIAT, trade buyer instigated deals are monitored between a basket of 12 developed economies and a basket of 11 emerging, high growth economies, using data sourced from Zephyr.


The number of Emerging-to-Developed (E2D) deals registered in the second half of 2009 stood at 102, representing a strong bounce back from the 78 recorded in the first half of 2009. By contrast, the number of Developed-to-Emerging (D2E) deals fell to 216; making it four consecutive six month periods during which that figure has fallen.


The net result of this is that E2D deals now represent 47% of the D2E totals – the closest the two sets of number have ever been since the EMIAT began. It also means that D2E deal activity has now more than halved from its high point of 463 deals in the latter half of 2007.


“Much has been said recently about the way in which the competitive threat posed by the emerging and high growth economies has been accelerated as a result of the credit crisis and ensuing recession. These figures bear that out," comments Ian Gomes, chairman of KPMG’s High Growth Markets practice for KPMG in the U.K.


Gomes adds that emerging economies – and the trade buyers within – have emerged quicker and more strongly from the problems which continue to haunt Western economies. "The EMIAT shows that the emerging economies were affected by falling deal numbers for just a year. The developed economies have had two years of decline – and we’re not even sure if we’re at the bottom yet,” he notes.


Gomes says that while their decline continues, there are signs everywhere of how E2D activity could be about to really accelerate. Chinese companies are showing greater interest in overseas acquisitions, prospecting for deals and conducting plenty of feasibility studies. Over in India, buyers sit relatively quietly at home, waiting for bank lending to begin again as their preference has always been to work with debt rather than equity. "If and when that happens, and the acquisitive Indian corporate base rumbles back into life, the gap between E2D and D2E deal values could narrow extremely rapidly,” Gomes says.


After India dominated E2D deals up until 2008, China now leads the way, recording 30 deals in the second half of 2009 after racking up 20 in the first half. By contrast, India registered just 25 deals in the whole year – or one-seventh of the E2D total.


Gomes suggests that prospects for further deal activity out of India and the Middle East will rely heavily on the actions of their local “hero” businesses. In India, this refers to the big marquee names that are currently pre-occupied with making the deals of the final pre credit crisis days work as they should. Once they return to the deal-making scene, the confidence they inspire should bring plenty of smaller businesses along behind them.


There is also evidence, across all emerging economy trade buyers, of a growing selectiveness over the kind of Western assets they would like to acquire. “No longer is there an appetite for buying distressed assets in the West purely because they offer a foothold into more developed economies. In their place, they would rather buy into well run, established companies which provide the sound base required for overseas expansion,” explains Alan Buckle, global head of advisory. 



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