KPMG International’s latest High Growth Markets International Acquisition Tracker reveals that mergers and acquisitions (M&A) transactions involving high growth markets (HGMs) rose for the second consecutive semester between December 2013 and December 2014, suggesting a sustained return to growth in global HGM M&A transactions.
In particular, the number of deals between developed market acquirers and high growth market targets (D2H) rose by 11 percent. This continues the steady rise in D2H deal volumes since 2013 and suggests the long decline in D2H M&A transactions may finally be over.
“The signs of a sustained return to growth in global HGM M&A transactions are very positive,” commented Cláudio Ramos, Global Head of High Growth Markets, Deal Advisory, KPMG International. “It is a strong picture all round, after so many semesters of falling volumes.”
The 11 percent increase in D2H deals over the latter half of 2014 is the highest since 2010/2011, with certain HGMs performing particularly well. D2H deals involving Chinese targets, for example, rose by 26 percent, acquisitions in Central America and the Caribbean increased 30 percent, and ASEAN (Association of Southeast Asian Nation) as deals shot up by 46 percent.
The most impressive resurgence was Sub-Saharan Africa (excluding South Africa). With incoming D2H transactions rising by 200 percent to 51, the region was the fourth highest recipient of D2H investment during 2014, behind only ASEAN, China and Central and Eastern Europe (CEE).
The United States was the biggest acquirer of HGM targets in terms of volume, but its growth between semesters during 2014 (10 percent) was actually below average. The fastest growth in HGM acquisitions during 2014 was Singapore, at 51 percent, and Germany and Hong Kong, both at 47 percent.
It is a similarly positive story for high growth to developed market (H2D) deals, which have risen 23 percent overall during three consecutive semesters of growth since 2013, signalling an undeniably robust resurgence. The most popular target markets for H2D acquirers were Singapore, which recorded an 80 percent rise in H2D acquisitions, Canada, with 57 percent growth, and Europe (other) at 41 percent.
Leif Zierz, Global Head of Deal Advisory, KPMG International, commented: "High Growth Markets have done their homework and maintained their growth potential. We will see an increasing connectivity between Developed and High Growth Markets through M&A to acquire client bases or know-how. HGM-related transactions will gain in importance in global M&A activity, creating additional challenges for cross-border M&A activity and integration."
Europe, in particular, proved an increasingly popular hunting ground for HGM acquirers. Germany, for example, registered its second highest annual total of H2D transactions since 2008. Italy saw a record 213 percent increase in acquisitions involving local targets, and Spain also attracted a record level of H2D acquisitions, with 35 deals. 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.
Despite the generally positive picture, some key HGM markets are still struggling. Brazil, for example, only saw two H2D deal completions during the whole of 2014, while the volume of D2H transactions involving Brazilian targets has been on a downward trend since early 2012.
Notwithstanding the weak cross-border transactional context for the country in 2014, an M&A study conducted by KPMG in Brazil showed a modest 3 percent year-on-year increase in local M&A transactions during 2014.
Cláudio Ramos commented: “2014 was a year of introspection in Brazil, not least due to the election. This is likely to have affected the decision-making process of corporates. We do not expect to see this trend substantially reversed in early 2015, as investors exercise caution in a scenario of economic uncertainty. However, as the political and economic environment returns to normal and Brazil becomes more attractive, deal flow should bounce back more significantly towards the end of the year.”
Transactions involving both HGM acquirers and targets are perhaps the only note of caution, showing only a marginal 4 percent increase over the course of 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.
The total number of 1,020 high growth market deals completed in H2 2014 was almost 100 more than during the first half of the year, which saw 934 deals. The proportion of deals between the three groupings (D2H, H2D and H2H) remained virtually unchanged, with H2D deals accounting for 25 percent of the total number HGM deals, D2H 61 percent and H2H 14 percent.
“It is interesting that the High Growth to Developed deals, as a proportion of all high growth deals, remain fairly static and have not gained ground over the developed market acquirers. However, the figures need to be seen in the context of a global M&A market that has been struggling and is only just beginning to see a return to form. In the long run, as macro-economic factors stabilize, I would expect to see the HGMs gain some market share,” said Phil Isom, Global Head of M&A, Deal Advisory, KPMG International.
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KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 155 countries and have more than 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 International performs no professional services for clients nor, concomitantly, generates any revenue.
The Deal Advisory practice for KPMG, comprises M&A, debt advisory, valuations, transaction services, strategy and restructuring services.
KPMG’s High Growth Markets Tracker includes data from completed transactions where a trade buyer has taken a minimum five percent shareholding in an overseas company. The Tracker 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 July and December 2014. All raw data is sourced from Thomson Reuters SDC and excludes deals backed by government, private equity firms or other financial institutions.
*The 15 developed countries or groups are: UK, US, Canada, Spain, France, Germany, Netherlands, Italy, Australia, Singapore, Hong Kong, Japan, Europe (Other), the Offshore Group and Oceania. The 13 high growth economies or groups are: Brazil, Russia, India, China, Central & Eastern Europe (CEE), the CIS (Commonwealth of Independent States), ASEAN, South & East Asia (excluding ASEAN), South Africa, Middle East & North Africa, Sub-Saharan Africa (excluding South Africa), South America (excluding Brazil) and Central America & the Caribbean.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 174,000 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.