A second consecutive semester of growth in the second half of 2014 marks turning point for global M&A performance
Mergers and acquisitions (M&A) involving high growth markets, or HGMs, rose a second consecutive semester - about 10 percent – between December 2013 and December 2014, according to KPMG's latest HGM International Acquisition Tracker.
This upswing suggests a sustained return to growth in global HGM M&A deals, reversing the steady decline in deal volumes of the previous 2.5 years.
KPMG's bi-annual tracker analyses deal flows between 15 developed economies or groups of economies including Singapore and the United States, and 13 high growth economies or groups of economics including India and China.
Mr Benjamin Ong, Head of Mergers & Acquisitions, KPMG in Singapore said: "The outlook for global HGM M&A is positive all round, after many semesters of declining volumes. The fact that this second consecutive rise in transactions is higher than the first rise signifies an increasing confidence."
ASEAN D2H deals rise 46 percent; Singapore among most active acquirers
In particular, the number of deals between developed market acquirers and high growth market targets (D2H) rose 11 percent between July and December 2014.
This marks a steady rise in D2H deal volumes since 2013, with certain HGMs performing exceptionally well.
D2H deals involving ASEAN targets, for example, shot up by 46 percent while acquisitions in Central America and the Caribbean also increased 30 percent. Chinese targets rose 26 percent.
The most active developed market acquirers of high growth market targets in ASEAN between July and December 2014 were Hong Kong and Singapore, with deals more than doubling within the second half of last year.
"ASEAN has seen a surge in the number of inbound M&A deals with improving political stability in the region. The upcoming formation of the ASEAN Economic Community is likely to provide a further boost to the ASEAN M&A landscape," said Mr Ong.
Acknowledging that Singaporean companies are also active acquirers in high growth markets, he added: "Given the maturity of the Singapore economy, local companies are increasingly expanding overseas via acquisitions and joint ventures."
The US was the biggest acquirer of HGM targets in terms of volume, but its growth of 10 percent between semesters during 2014 was marginally below average.
The fastest growing developed acquirers of HGM targets during 2014 were Singapore, at 51 percent, and Germany and Hong Kong, both at 47 percent.
Singapore, Canada most popular targets for high growth acquirers
It is a similarly positive story for high growth to developed market (H2D) deals, which have increased 23 percent overall during three consecutive semesters of growth since 2013.
The most popular target markets for H2D acquirers were Singapore, which recorded an 80 percent rise in H2D acquisitions and Canada, with 57 percent growth.
Noting that the consistent growth signalled a ‘robust resurgence', Mr Ong said: "Singapore is the epicentre of a rapidly growing region. The country is highly attractive for overseas corporations looking to expand into Southeast Asia, given its business-friendly environment and local companies' quality customer bases, branding and expertise."
Europe proved an increasingly popular hunting ground for HGM acquirers. Germany, for example, registered its second highest annual total of H2D transactions since 2008 while Italy saw a record 213 percent increase in acquisitions involving local targets.
Looking at those markets doing the acquiring, China saw the strongest growth, with H2D deals involving Chinese acquirers rising from 39 to 51 over the latter half of 2014, an increase of 31 percent.
ASEAN high growth acquirers also saw a 14 percent increase in deals, from 63 deals in the first half of 2014 to 72 in the second half.
Decline in H2H deals bottoming out
Transactions involving both HGM acquirers and targets are perhaps the only note of caution, showing only a marginal four percent increase over 2014.
Nevertheless, this relative stability, coming after 4 years of relentless decline, could suggest that the worst is over and the volume of cross-border H2H deals is levelling off.
On the whole, the total number of 1,020 high growth market deals (D2H, H2D, H2H) completed in H2 2014 was almost 100 more than during the first half of the year, which saw 934 deals.
The proportion of deals among the three groupings remained virtually unchanged, with H2D deals accounting for 25 percent of the total number of HGM deals, D2H 61 percent and H2H 14 percent.
"It is interesting that the H2D deals, as a proportion of all high growth deals, remain fairly static and have not gained ground over developed market acquirers. However, we need to see this within the context of a global M&A market that is only just beginning to see a return to form. In the long run, as macro-economic factors stabilise, I would expect to see an upswing in H2D deals," said Mr Ong.