Monday, March 15, 2010

Dealmaking Volume Shifting East; Developing Market Deals Surge.

According to an article in the FT, a new KPMG-backed survey, published today, shows that companies in emerging economies stepped up acquisition activity considerably in to developed markets over the last six months of 2009.

By comparison, the number of deals involving companies from developed markets buying assets in emerging economies fell. There is no question in my mind that world’s economic axis shift eastward is starting to accelerate.  The results underscore the renewed confidence of companies in emerging economies to embark on outbound deals, and how the ongoing impact of recession and lack of credit have curtailed the globe-trotting ambitions of many western companies.

KPMG recorded 102 emerging-to-developed deals in the second half of last year, a bounce back from the 78 deals in the first half of 2009.  Trade buyers in emerging markets had cut deal activity in developed economies at the height of the global economic downturn amid worries over valuations and corporate earnings.

The number of developed-to-emerging deals dropped to 216 in the second half of the year – the fourth consecutive six-month period when such activity has fallen. It suggests that western companies continue to struggle for credit and remain focused on surviving within their home markets.

The latest figures mean that developed-to-emerging deal activity has more than halved from its high point of 463 deals in the second half of 2007, when western buyers flocked to countries such as China because of high economic growth or to outsource production to cheaper locations.

The figures are contained in a six-monthly study of inbound and outbound activity involving 11 emerging markets and 12 developed economies, excluding private equity deals. The emerging economies include India, China, Russia and South Africa, while the developed economies feature the US, UK, Germany and France.

The economy in the BRICs as well as Turkey, Korea, South Africa, Indonesia is rebounding from recession at a faster pace than their developed counterparts in the US and Europe.  It has been a long term trend that corporations have been investing in the developing world but following recession, they will be more aggressively fighting for inorganic growth not only competing among  Global 500 but also against emerging conglomerates from the developing economies. These are once in a life time opportunity for dealmakers with an appreciation for political, social and cultural aspects of business in these territories.

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