Global M&A Activity Targets High Growth Markets

The value of global merger and acquisition (M&A) investments targeting the world’s key growth markets rose by 5% from the previous year to US$162.4bn in 2012, according to an analysis by international law firm Freshfields Bruckhaus Deringer. However, last year’s increase represents a modest rebound following a drop of almost 25% recorded for 2011 compared with 2010.

While the value of deals grew, the total number of M&A deals targeting high growth markets fell by 12% to 2,796. That is still a lot better than global M&A in 2012, where the market dropped almost 5% in value terms and 9% in volume terms compared to 2011.

The US led the ranking of most acquisitive nations in growth markets, followed by Belgium – although this mainly reflected the Anheuser-Busch-InBev deal), Hong Kong and Singapore. The UK followed, but more than halved its overall investment directed at higher growth markets to US$10.7bn in 2012 compared to 2011. The US also committed the highest amount of investments in these markets since 2007, an increase of almost 70%, to over US$13bn, from 2011.

Last year’s M&A activity targeting higher growth markets was largely dominated by acquisitions in food and beverage; insurance; metals and mining; and banking sectors. These combined accounted for almost 45% of all investments.

At US$35bn, China attracted most investment in 2012, followed by Mexico (US$25.6bn); Russia (US$18.6bn), Brazil (US$18.2bn) and Indonesia (US$13.7bn). Mexico – spurred by the US$20bn-plus Anheuser-Busch InBev deal – and Turkey witnessed some of the biggest increases in inward investment compared to 2011 (of 276% and 60% respectively), whereas India suffered a drop of 42% to US$10.3bn.

“After a period where many investors have been concentrating on matters closer to home and have held off investing in higher growth markets, we are seeing a gradual return of corporate appetite for more sizeable investments in these economies,” said Edward Braham, global head of corporate at Freshfields. ”2011 proved slow, 2012 was more active and the early signs for 2013 point to deal flow in higher growth markets picking up further.”

“2012 proved quite a difficult year for deal making in high growth markets. What were already weak macroeconomics in developed markets fell under siege from successive eurozone crises and the US fiscal cliff, with business confidence remaining under pressure and hesitancy about investing in meaningful deals further afield. Increased shareholder scrutiny of deals may also have been a factor in discouraging deal flow.’

“Yet, with growth at home being anaemic at best, many corporates see the higher growth markets as their best option to improve growth in their businesses.

“Looking forward, absent any global shocks I expect global M&A activity in 2013 to continue at similar levels to the second half of 2012. Cross-border M&A, involving the higher growth economies, will be a key area to watch in the year ahead.”

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