China saw inbound acquisitions from developed markets fall to a decade low in the first half of 2015 due to various uncertainties and slowing domestic economy, but outbound investment in developed markets remained at their highest level for 10 years, finds a recent KPMG’s analysis.
Acquisitions from developed markets into China in the first half of 2015 dropped 27 percent from six months ago to a 10-year low at 70 deal, however, China’s investment into developed markets remained at a decade high of 53 deals, according to the latest edition of KPMG’s High Growth Markets Tracker. Globally, acquisitions by developed markets into emerging markets declined by 19 percent to 516 deals in the same period, also a decade low.
The KPMG analysis includes data from completed transactions where a buyer has taken a minimum 5 percent shareholding in an overseas company. It tracks deal flows between 15 developed economies and 13 emerging economies, excludes deals backed by government, private equity firms or other financial institutions.
Rupert Chamberlain, Partner, KPMG China, says: “There is a slowing interest in China M&A in part due to uncertainties on exits in the light of current capital market corrections, also uncertainties over the direction of currency, which has raised concerns for foreign investors over real return. These factors not only affect China but also in other emerging markets like ASEAN.”
Despite long-term positive outlook for M&A investment into emerging markets, the short term picture is less certain. Russia and India in the BRICs saw acquisitions from developed markets drop 62 percent and 30 percent, respectively. Brazil, however, bucked the trend and recorded a 10 percent growth for inbound acquisitions.
The analysis also finds that M&A between emerging markets fell 25 percent from the second half of 2014 to a 10-year low of 112 deals. The number of deals into Asia from other emerging markets tumbled: ASEAN by 33 percent to eight deals and China by 50 percent to 10-year low of 12. China acquiring targets in other emerging markets dropped a quarter to nine deals.
Appetite of emerging markets investing in developed markets, however, remains resilient. M&A from emerging markets into developed countries dropped a moderate 11 percent from six months ago to 232 in the first half of 2015, whereas China recorded 51 deals of outbound M&A, remains at 10-year high.
Additionally, the analysis highlights that Hong Kong was one of the five developed markets that saw an increase in inbound acquisitions from emerging markets, which rose from 18 to 26, the highest 6-month volume since 2010. UK registered the strongest growth of 63 percent to 31 deals.
Chamberlain concludes: “The impact and scale of the domestic M&A market in China is often overlooked. Yet it is likely to have an increasing impact on inbound M&A as stronger domestic players and importantly local private equity begin to participate in a more meaningful way in the reforms.”
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About the High Growth Markets Tracker
KPMG’s High Growth Markets Tracker (formerly Emerging Markets International Acquisitions Tracker) was established in 2003. It includes data from completed transactions where a trade buyer has taken a minimum five percent shareholding in an overseas company. It looks at deal flows between 15 developed economies (or groups of economies) and 13 emerging economies (or groups of economies). The Tracker is produced every six months to give an up-to-date of cross-border merger and acquisition activity, with the current edition featuring deals between January and June 2015. All raw data is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 162,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG China has 16 offices in Beijing, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR, with around 9,000 people.
KPMG China refers to the member firms of KPMG International in Mainland China, Hong Kong SAR and Macau SAR.