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Emerging market M&A volume at record low in first half 2013 - survey

Office workers walk during morning peak hour in central Sydney October28, 2009. REUTERS/Daniel Munoz/Files

By Daniel Bases

NEW YORK (Reuters) - Mergers and acquisitions activity among developed and emerging markets fell 22.4 percent to a record low in the first half of 2013 compared with the same period a year ago due primarily to economic uncertainty, a new survey showed on Monday.

In contrast, the relative economic growth and stability in the United States resulted in an increase in U.S. companies making acquisitions in emerging markets, according to audit, tax and business advisory services firm KPMG.

In its latest High Growth Markets Tracker study, the deal flow globally among developed and high-growth economies, or emerging economies, fell to 805 transactions in the first half of 2013 compared with 1,038 in the first half of last year.

That is the fewest number of M&A deals involving emerging market companies, either as a target or a buyer, over a six month period since KPMG started compiling the study in 2005, the data showed.

Three broad categories of M&A activity were tracked by KPMG using Thomson Reuters data: developed market acquirer's of emerging and high growth market assets and vice versa; and acquisitions of one emerging and high growth market company by a peer in another emerging and high growth market.

"High-growth-to-developed market (H2D) transactions fell to their lowest level since 2005," said Mark Barnes, leader of KPMG LLP's U.S. High-Growth Markets practice said in a statement.

"Many high-growth market companies are taking a 'wait-and-see' approach before investing in developed economies because many of them are experiencing varying degrees of economic uncertainty," Barnes said.

U.S. companies were most active in purchasing assets in Brazil, with 25 deals completed, followed by 18 deals in India.

"U.S. companies are exhibiting higher levels of confidence domestically and we're starting to see this translate into increased acquisition activity in emerging markets," said Barnes. "But the United States was one of only a few developed economies to have an uptick in D2H deals, as overall D2H deal activity was at its lowest since 2009."

In the first half of 2013, there were 110 total high-growth-to-high-growth (H2H) deals, down from 131 in the second half of 2012 and 129 deals in the same period a year ago.

That vein of deal making (H2H) saw the Commonwealth of Independent States as the most popular regional target, registering 26 inbound deals, according to the study. Russia was the leading emerging market acquirer with 35 deals.

The bulk of the survey's reporting period occurred prior to the wrenching sell-off in emerging markets. The decline in asset prices followed a May 22 speech by U.S. Federal Reserve Chairman Ben Bernanke where he first suggested that the central bank might start to pull back from its monetary stimulus program before the year-end.

Low interest rate borrowing in the U.S. market, a consequence of the Fed's unorthodox program, had been recycled into higher yield emerging market assets. The prospect of that flow of cash slowing resulted in an exit from emerging markets.

A deal was considered in the survey if an acquirer took at least a 5 percent shareholder interest. However, deals that involved backing by government, private equity firms or other financial institutions were excluded.

The research analyzed deal flows between 15 developed economies or groups of economies and 13 high-growth economies or groups of economies.

(Reporting By Daniel Bases. Editing by Andre Grenon)