Trade buyers in emerging economies appear to be losing their appetite for merger and acquisition (M&A) targets in developed nations, says a KMPG report. After a surge in cross-border activity in the first six months of 2010, the second half witnessed a decline in the number of M&A deals inked by companies from emerging markets with firms in developed countries, forcing Western businesses to reconsider their attractiveness to overseas investors.
According to KPMG's Emerging Markets International Acquisition Tracker (EMIAT), 239 Emerging-to-Developed (E2D) deals were recorded in the second half of 2010. In contrast, 265 such deals were seen in the first half of 2010 (significantly up from the 195 in the second half of 2009).
"After the burst of activity early in 2010, there was a general expectation that E2D deals would continue to increase. However, despite some cash-rich trade buyers and the presence of some hungry sovereign wealth funds, it hasn't really happened.
"That's not because potential targets are looking too expensive. Rather, I think that the developed markets themselves are -- for the time being -- no longer as attractive a proposition as they were previously to these buyers," KPMG UK Chairman (High Growth Markets Practice) Ian Gomes said.
A key reason behind the creation of the EMIAT was to monitor the convergence of E2D and D2E
deals. However, with deal-making conditions generally easing worldwide, the latest fall -- coupled with a small rise in the volume of deals within emerging markets -- may suggest that, for now at least, assets in the developed markets are no longer as attractive a prospect as they used to be.
The volume of Developed-to-Emerging (D2E) deals increased by 2 percent to stand at 812.
"A meagre 2 per cent increase in D2E numbers -- after significant increases previously -- may suggest activity is now about to tail off.
I feel that developed markets buyers are now starting to find emerging market acquisitions too expensive for their current tastes. With purchasers fearful of diluting the bottom line and mindful of ongoing concerns around governance, bribery and corruption in certain key markets, I think we may well see a fall in D2E activity next time around," Gomes added.
The report said the gap between the two would narrow as emerging market companies develop their economic strength.
The report also indicated that the Emerging-to-Emerging (E2E) trend may now be the one to watch out for, as companies look to go shopping in fast-growing economies that exhibit many similar characteristics to their own domestic markets for access to raw materials, energy sources and consumer markets. Since 2005, there have been, on average, 240 E2E deals every year.
