The FINANCIAL — Trade buyers in the emerging economies have their M&A deal-making sights firmly set back on the developed economies after recording a 25 percent increase in cross-border deal activity in the past six months.
According to KPMG’s latest Emerging Markets International Acquisition Tracker (EMIAT), 243 Emerging-to-Developed (E2D) deals were recorded in the first half of 2010, compared to 194 in the latter half of 2009.
In addition, the latest EMIAT – which has been expanded to cover all countries worldwide and to monitor deals between the emerging economies themselves – now reveals that there has been an average of 202 Emerging-to-Emerging (E2E) cross-border deals per year since the start of 2003. This represents 1518 deals struck in 7.5 years – and virtually all away from the eyes of the Western media – as emerging economy trade buyers continue to grow in stature.
"Having previously monitored trade buyer instigated deals between a selected few developed and emerging economies, the new-look EMIAT now covers all countries worldwide, with analysis broken down between 15 developed countries or groups of countries and 13 emerging countries or groups of countries," KPMG informs.
On the other side of the deal-making equation, the latest EMIAT reports 748 Developed-to-Emerging (D2E) deals in the past six months; a nine percent increase on the previous six month period.
Commenting on the findings, Ian Gomes, Chairman of KPMG’s High Growth Markets practice for KPMG in the U.K, said: “The latest findings suggest that deal-making confidence is returning far quicker in the emerging economies than in their developed market counterparts. In absolute terms, E2D deals still only equate to 32 percent of the D2E total for the past six months but it is apparent that they have worked through their financial crisis hangover far quicker. By contrast, I sense a degree of reticence amongst many of the developed economy trade buyers to get back on the M&A trail before all the nagging doubts over double dip recessions and sovereign debt fall-outs have fully receded.”
“This somewhat subdued period in the M&A market does nevertheless provide the opportunity to consider the extent of E2E deal activity. This is an area of cross-border activity which has been given little or no attention – yet I believe it is where the multi-nationals of tomorrow are being created.”
“This subset of cross-border activity accounts for over 1500 deals since January 2003. This significant total is equivalent to 54 percent of E2D deals and 16 percent of D2E deals in the same period. Via this activity, a new breed of emerging market multi-national is slowly taking shape, building up capability and resource and able to test out new products in some of the most populous nations of the world. These growing multi-nationals pose a very real threat to the established Western business hegemony – and they’re being formed right now, right under our noses. For this reason, I expect to be paying more attention to these E2E numbers as the M&A market cranks back into life.”
While D2E deals in the latest EMIAT have seen a slow but steady nine percent increase, much of this is due to the recalibrated EMIAT now picking up on a substantial deal stream between Cypriot registered purchasers (part of “Europe Other” for EMIAT purposes) and targets in either Russia or the CIS.
Making the most of long-established business relationships between these countries, this deal flow accounted for 22 percent of all D2E activity in the first half of 2010. In fact, if these deals were stripped out over the past year, overall D2E activity would have grown at only half the rate that it actually has, further reinforcing the point about the vast majority of developed economy trade buyers generally preferring to stay on the sidelines for the time being.
The 25 percent increase in E2D deals was in no small part down to a resurgent India. After three relatively quiet six month periods, India recorded 50 deals – well up on the 21 of the previous six months. China was also up nine deals to 39 while South East Asia jumped from 34 to 47.
On the E2E front, analysis of the numbers going back to 2003 reveals that South East Asia has been the most popular destination, registering 302 inbound deals. China was the next most popular market with 197 deals, ahead of the CIS with 176 and India with 167. Perhaps the only surprise here is that Brazil has only registered 56 deals into the rest of South America – out of the latter’s total of 121 deals since 2003.
