Emerging markets acquisitions decline, reflecting global pattern, report says

Corporate acquisitions involving emerging markets dropped in the second half of 2011, reflecting a global downturn in deals during that period, according to a recent report.

There were 705 developed-to-emerging (D2E) deals, in which a developed market company made a deal in an emerging market, completed during the final six months of 2011, a decrease of 6.6% from the 755 completed during first half of the year, according to KPMG’s Emerging Markets International Acquisition Tracker.

Emerging-to-developed (E2D) deals fell 6.1%, to 201 from July to December of 2011, after 214 deals were completed in the first half of the year, the report said. Globally, deals dropped 10.1%, from 2,715 to 2,442, between the first and second half of 2011.

The trend appears to be bleeding into 2012. Recent research from Ernst & Young showed that M&A volumes globally were down 22% in the first quarter, compared to the same period last year.

A lack of confidence, rather than a lack of cash, has affected deals in both emerging and developed economies, David Simpson, KPMG’s head of global M&A, said in a news release. Before the second half of 2011, D2E and E2D deals each had risen in each of four consecutive half-year periods.

“Emerging economies are continuing to grow much faster than the developed world, so we might expect deal volumes to be driven by cash-rich emerging market corporates and companies from developed countries seeking growth opportunities,” Simpson said. “Confidence has been holding both sides of the equation back, but pressures are increasing which must ultimately lead to higher deal flow.”

According to KPMG:

• The US accounted for the most D2E acquisitions (126), but that number was down 20.2% from the first half of 2011. Volumes in France and Germany also fell.

• UK D2E acquisitions increased from 66 to 70 in the second half of 2011.

• Although China and Southeast Asia were the most popular D2E target markets, acquisitions there trailed the first half of 2011.

• Africa emerged as a more significant D2E target. South Africa’s D2E deal volume reached its highest level since 2007, sub-Saharan Africa’s deal volume rose to its highest total in three years, and the Middle East and North Africa reported a record 34 D2E deals.

• India moved past China as the most frequent E2D buyer, with 37 deals during the second half of 2011, five more than Chinese buyers.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.