KPMG: Emerging markets continue to narrow the M&A gap

The number of Merger & Acquisition (M&A) deals involving trade buyers from the emerging markets buying into the developed economies is holding up better in the face of the credit crisis than deals going in the opposite direction; yet fears remain over how long this trend can continue. According to the latest Emerging Markets International Acquisition Tracker (EMIAT) from KPMG’s Advisory practice, the second half of 2008 saw a 28 percent decline in the number of emerging-to-developed (E2D) deals, where companies from the emerging markets made an acquisition in the developed markets. This is compared to a 37 percent decline in developed-to-emerging (D2E) deals. Only 107 E2D deals were registered in six months, the lowest total since the second half of 2006. On the other side of the equation, the EMIAT recorded 230 D2E deals; the lowest figure since the beginning of 2003. While E2D deal volumes remain firmly in the shadow of their D2E counterparts, the gap is narrowing. Since the second half of 2006, when E2D deals represented 23 percent of the D2E total, that gap has been steadily closing to stand at 47 percent in the most recent EMIAT. For the purposes of the EMIAT, deals are monitored between a basket of 11 developed economies and a basket of 11 emerging, high growth economies. Deals involving private equity or institutional backing are not included, thereby creating a truer picture of the ability and appetite of trade buyers in a particular country to execute deals.

Commenting on the latest EMIAT, Ian Gomes, Chairman of KPMG’s High Growth Markets practice for KPMG in the U.K, said: “Cross-border deals emanating from the emerging markets appear to be holding up slightly better than those from their developed market counterparts – although both are still in serious decline. However, before we get too carried away with the apparent robust nature of the emerging market trade buyer, it’s worth noting several factors which I expect to further constrain outbound deal activity in the future. First and foremost is the confidence factor. Before the credit crisis struck, trade buyers were swept along by a wave of enthusiasm once they saw their national champions closing landmark deals which gave them a foothold in the developed markets. Emboldened by their countrymen’s success, they looked for a piece of that action themselves. Just as such deals initially inspired confidence, the way in which some of them have subsequently run into trouble has now dented confidence back at home, stifling the collective acquisitive urge.”