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Global M&A slowdown leading to fewer high growth deals: KPMG

India Infoline News Service / 08:52 , Sep 12, 2013

Tom Franks comments, “The last six months have clearly been weak for high growth market deals, but it is part of a

global downward trend in M&A activity."

KPMG International’s latest High Growth Markets International Acquisition Tracker shows that M&A transactions

involving high growth markets (HGMs) are not immune to the pressures that continue to hinder overall global M&A

activity.

 Although there have been sugges tions that market confidence and optim ism are returning to the deals market, the

latest HGM transaction figures do not bear this out.

Developed market acquisitions of targets in high growth markets (D2H deals) were at their lowest level since at least

2009. D2H deals in H1 2013 were 23 percent down on the same period last year and 13 percent down on H2 2012.

This is the largest 6-month decline since 2008/2009, when deal volumes plummeted by 32 percent in 6 months.

Tom Franks, KPMG’s Global Head of Corporate Finance, comments, “The last six months have clearly been weak for 

high growth market deals, but it is part of a global downward trend in M&A activity, rather than a specifically high growth

iss ue. That said, some key high growth markets appear to have been particularly affected. The data suggests that China

may be losing its lustre.”

India

India saw a significant decline in H2D activity with 18 H2D (high growth market acquisitions of targets in developedmarkets) deals completed in H1 2013, in comparison to 33 deals in H2 2012. On the other hand, the D2H activity

(developed market acquisitions of targets in high growth markets ) showed a marginal increase with 45 deals

completed – one more than H2 2012. The volume of H2H (deals involving both high growth market acquirers and high

growth market targets) transactions also saw a significant decline.

Says, Utkarsh Palnitkar, Head-Transactions & Restructuring, KPMG in India, “Slow progress of economic reforms

combined with increasing inflation rates and depreciation of Indian currency against the US dollar have had an impact

on the M&A activity in India. While we saw the year beginning on a slow note, the second quarter of 2013 did see

resurgence in the M&A activity on the back of some notable cross-border deals such as Apollo Tyres-Cooper Tire,

Mahindra-CIE along with Unilever’s stake increase in Hindustan Unilever and the Jet-Etihad deal which is currently

underway. While the outlook for 2013 still remains uncertain, we believe that the uptick in M&A activity as witnessed

between April to June 2013 may drive a return of confidence in boardrooms as well as help in improving global investor 

sentiment.”

 Adding to that, Vikram Hosangady, KPMG in India’s Head of Transaction Services and Private Equity said, “India will

remain a very interesting des tination for investments. International acquirers and Private Equity (‘PE’) investors will

continue to actively pursue investments in india, albeit with s ignificant learnings. The M&A activity is now more likely to

reflect changed realities, with acquirers expected to focus more on due diligence prior to making an investment . It is

also important for buyers to create business plans to reflect realistic assumptions and the true potential of the

business . With PEs, we are more likely to see control transactions especially by global buyout firms alongwith realistic

valuations. For international buyers, getting a deal done in India may require greater flexibility on the deal structures.”

Key markets suffering

China, so long in the vanguard of the HGMs, saw a significant reduction in D2H activity, with 69 D2H deals involving

Chinese targets in H1 2013, perhaps a reflection of the rising costs of doing business in China. This is 16 percent

fewer than the 83 deals completed in H2 2012 and compares to the 100-plus Chinese D2H acquisitions that were

being completed as recently as H2 2011 and H2 2010.

The following regions saw a significant fall-off in activity:

Central and Eastern Europe (CEE): D2H deals involving CEE targets down 25 percent on H2 2012;

In South America (ex. Brazil): D2H acquis itions declined from 66 to 44; and

South and East Asia: D2H deal volumes dropped by 19 percent, from 108 transactions in H2 2012 to 88 in H1 2013.

 A more positive story was evident in the following regions:

India: D2H acquisitions were up one over H2 2012 to 45 D2H transactions completed; and

The Commonwealth of Independent States (CIS): 16 deals completed in H1 2013 was six more than in H2 2012.

High growth acquirers cautiousIn contrast to previous periods where a slowdown in D2H activity has been offset, at least partially, by more robust H2D

figures (high growth acquisitions of developed market targets), H1 2013 also saw H2D transactions fall to their lowest

level s ince 2005.

 

The United States is a case in point. There were only 31 H2D deals involving US targets in H1 2013, down from 52 in H2

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2012. This is the lowest volume since 2005 and over 50 percent lower than the same period in 2010. Europe (Other)

also saw a significant decline, with H2D deals involving Europe (Other) targets down 32 percent in 6 months.

The mos t active high growth market acquirer of developed market targets was South and East Asia, which accounted for 

31 deals in H1 2013, not far off the levels achieved in 2012 and 2011.

 Another two important HGMs, however - India and Malaysia - both saw dramatic declines in acquisitions of developed

market targets. The number of Indian H2D deals dropped to just 18 in H1 2013 – the lowest level since 2009. Malaysia

also saw a record fall, from 24 H2D deals in H2 2012 to 8 in H1 2013 – by far the lowest number of Malaysian H2D

deals since the launch of Tracker.

H2H deals back to 2006 levelsThe disappointing D2H and H2D statistics are mirrored in the latest H2H (high growth to high growth) figures. These

show that H2H deals are not immune to the global trends affecting both D2H and H2D deals, with H2H transaction

volumes falling back to 2006 levels.

Particularly big declines in H2H deals were observed in the following regions:

CEE-focused H2H acquisitions: fell by 33 percent between H2 2012 and H1 2013; and

South America (ex. Brazil): saw a 40 percent drop over the same period.

South and East Asia also saw a 33 percent decline in H2H transactions involving South and East Asian targets. Russ ia

and the CIS were the only markets that saw significant rises in H2H deals as vendors, up by 18 percent and 53 percent

respectively since H2 2012. China also saw a small rise, from 7 to 9. In the other three BRIC markets (Brazil, India and

China), the volume of H2H acquisitions as acquirers all declined.