Developed and Emerging Economies Benefiting from Greater M&A Activity
Despite fears over growing protectionism, outbound and inbound emerging market M&A activity is rising, according to recent statistics.
Figures from Dealogic for the first four months of 2011 show that mergers or acquisitions of emerging market firms by businesses in developed countries totaled $76.3 billion. Meanwhile, outbound M&A activity from emerging markets was at the highest point since 2008, totaling some $56.1 billion of deals.
Twenty-one per cent of all M&A activity taking place in emerging markets currently involves emerging market firms merging with, or acquiring, businesses in developed countries. These, according to Dealogic, include those in Western Europe and North America, as well as New Zealand, Australia and Japan.
China is the most active emerging market in acquiring firms in developed nations, completing 90 deals worth $15.5 billion in the first four months of 2011. This was followed by Israel, the United Arab Emirates, India and Singapore.
American firms were the top target for these emerging market companies, followed by Spanish firms and Canadian firms.
So why are cross-border deals between the developed and the emerging worlds seeing such a resurgence? "The global market is now a borderless one,” explained Raymond Choong, the CEO of Hong Leong Financial Group - a Malaysian banking and insurance group looking to push further into emerging markets through M&A. The banking group, which is already active in Malaysia and Vietnam and has interests in China, expects to triple its profits within five years by moving into other South-East Asian countries including Thailand and Indonesia.
The banking group’s story is similar to many other firms looking to expand overseas – it is simply facing too much competition in its domestic market and growth opportunities overseas look attractive.
Highly competitive industries are topping the lists for those most active in cross-border M&A activity in emerging markets. The oil and gas industry represents nearly 50 per cent of all emerging market M&A activity, closely followed by healthcare and chemicals, in second and third place.
One of the largest cross-border deals completed this year has been the purchase of Swiss pharmaceuticals firm Nycomed by Japan-based Takeda Pharmaceuticals for $13.7 billion in July 2011. Takeda embarked on the ambitious deal largely to increase its presence in both Europe and the emerging markets that Nycomed has access to.
Yasuchika Hasegawa, Takeda’s chief executive, explained, “Nycomed’s strength in a geographically wide range of markets and its diverse talent base will be a strong driver in helping us realise our important mission of striving towards better health or patients worldwide through leading innovation in medicine.”
As a result of the deal, Takeda expects to see revenues rise by 30 per cent, while operating income should increase by 40 per cent.
Some analysts believe the recent surge in activity is being prompted by fears about growing protectionism, sparked by the failure of some deals to get to the finishing line. An example was Australia’s blocking of Singapore Stock Exchange’s purchase of the Australian Stock Exchange in April, due to the Australian government claiming the deal was against national interests.
However, investment banks are still very keen to work in emerging markets – indicating plenty of scope for more M&A activity this year. A recent report by London’s Financial Times showed that banking heavyweights like Goldman Sachs, Bank of America Merrill Lynch and Credit Suisse are all piling into emerging markets and benefiting from their involvement in M&A activity. Thomson Reuters data shows that fees paid to investment banks advising on M&A in emerging economies increased by 25 per cent to $3.9 billion in the first six months of 2011.