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by Caroline Clayfield
Emerging markets have offered a glimmer of hope to M&A dealmakers during a period when economic uncertainties have dampened activity levels in the West. However, it seems the light is also dimming in this market - leading analysts to ask whether emerging market M&A strength was overstated.
The tumultuous European economy has had a huge effect on dealmakers in the region, with the past month being no exception. It’s not surprising, in light of the volatility of the European markets and the possibility of a collapse of the Euro, that M&A deals have been few and far between in the third quarter. In fact, M&A activity fell by 34 per cent compared with the same three-month period in 2010, according to the latest report from Dealogic.
The value of the deals that did go through dropped to $146.6 billion, which is the lowest total for a quarter since Q2 of 2004. The conclusion among analysts is that chief executives across the board are feeling less confident and more cautious as a result of the Eurozone debt crisis.
Although the cautious approach has been symptomatic of the general unease being felt in Europe, emerging markets have been held up as an example of a region where M&A is still very much the way forward in terms of growth. It seems, however, that even emerging markets are starting to show signs of pressure, with Dealogic’s figures suggesting a troubled time for many of the BRIC regions.
Part of the problem was falling deal values and this was illustrated further by Dealogic’s figures. They show average deal size to have fallen to $39 million from $57 million in India. In Brazil, the number of deals rose, while their average value fell by more than 50 per cent.
India and Brazil were perhaps the worst performing countries, in terms of the level of activity versus expectations. Dealogic reported: "India-targeted volumes totaled $39 billion in the first nine months of the 2011, down 31 per cent from $56.1 billion on the same period of 2010."
The third quarter did not show any more signs of improvement, with combined M&A value of $4.7 billion, which was the lowest since Q2 of 2005. The third quarter was poor for emerging markets in general and small drops in activity earlier in the year intensified in the third quarter when the value of deals fell by $91 billion from 2010 values, compared to a fall of 38 per cent globally.
Brazil was another region to suffer from falling confidence, with M&A volumes down 50 per cent, partly attributable to the collapse of the huge deal between CBD Pao de Acucar and French retailer Carrefour. The $14 billion deal fell through after Brazil’s development bank decided to pull out – causing even more alarm among potential dealmakers looking to do business in Brazil.
Although all these indicators point to a possible long-term slowdown of emerging market M&A, many analysts believe the problems to be a ‘blip’. While India and Brazil were struggling, for example, China actually saw a rise in M&A activity and the Asia Pacific region in general performed well, totting up a record $406.1 billion worth of deals in the first nine months of 2011.
Australia and China are the strongest players in the region at the moment, but there’s little to suggest India’s downward trend will continue into next year. John Cutts of Pall Mall Capital, for example, told the Financial Times that the impact of the uncertainties will be temporary: “There are lots of corporates who are not short of cash, and there are opportunities for strategic moves – if you are not dependent on a bank. Otherwise, people will sit on their cash, and deals will be delayed until the start of 2012.”
Is the downturn in Emerging Markets M&A long-term or a temporary blip?
by Caroline Clayfield
Emerging markets have offered a glimmer of hope to M&A dealmakers during a period when economic uncertainties have dampened activity levels in the West. However, it seems the light is also dimming in this market - leading analysts to ask whether emerging market M&A strength was overstated.
The tumultuous European economy has had a huge effect on dealmakers in the region, with the past month being no exception. It’s not surprising, in light of the volatility of the European markets and the possibility of a collapse of the Euro, that M&A deals have been few and far between in the third quarter. In fact, M&A activity fell by 34 per cent compared with the same three-month period in 2010, according to the latest report from Dealogic.
The value of the deals that did go through dropped to $146.6 billion, which is the lowest total for a quarter since Q2 of 2004. The conclusion among analysts is that chief executives across the board are feeling less confident and more cautious as a result of the Eurozone debt crisis.
Although the cautious approach has been symptomatic of the general unease being felt in Europe, emerging markets have been held up as an example of a region where M&A is still very much the way forward in terms of growth. It seems, however, that even emerging markets are starting to show signs of pressure, with Dealogic’s figures suggesting a troubled time for many of the BRIC regions.
Part of the problem was falling deal values and this was illustrated further by Dealogic’s figures. They show average deal size to have fallen to $39 million from $57 million in India. In Brazil, the number of deals rose, while their average value fell by more than 50 per cent.
India and Brazil were perhaps the worst performing countries, in terms of the level of activity versus expectations. Dealogic reported: "India-targeted volumes totaled $39 billion in the first nine months of the 2011, down 31 per cent from $56.1 billion on the same period of 2010."
The third quarter did not show any more signs of improvement, with combined M&A value of $4.7 billion, which was the lowest since Q2 of 2005. The third quarter was poor for emerging markets in general and small drops in activity earlier in the year intensified in the third quarter when the value of deals fell by $91 billion from 2010 values, compared to a fall of 38 per cent globally.
Brazil was another region to suffer from falling confidence, with M&A volumes down 50 per cent, partly attributable to the collapse of the huge deal between CBD Pao de Acucar and French retailer Carrefour. The $14 billion deal fell through after Brazil’s development bank decided to pull out – causing even more alarm among potential dealmakers looking to do business in Brazil.
Although all these indicators point to a possible long-term slowdown of emerging market M&A, many analysts believe the problems to be a ‘blip’. While India and Brazil were struggling, for example, China actually saw a rise in M&A activity and the Asia Pacific region in general performed well, totting up a record $406.1 billion worth of deals in the first nine months of 2011.
Australia and China are the strongest players in the region at the moment, but there’s little to suggest India’s downward trend will continue into next year. John Cutts of Pall Mall Capital, for example, told the Financial Times that the impact of the uncertainties will be temporary: “There are lots of corporates who are not short of cash, and there are opportunities for strategic moves – if you are not dependent on a bank. Otherwise, people will sit on their cash, and deals will be delayed until the start of 2012.”
