Chinese, Japanese firms flex muscles in cautious M&A environment


By Ken Tysiac

Asian investors are emerging as a more significant force in acquiring other firms in international deals, while firms across much of the rest of the world exercise abundant caution.

Companies and investors in many developed markets generally are seemingly hesitant to deploy cash as Europe’s debt crisis continues to create concerns for the global economy. But companies and investors based in China and Japan increased acquisitions in the first half of 2012, capitalising on a market in which there are few buyers, according to KPMG’s High Growth Markets International Acquisition Tracker. South and East Asia as a whole also saw increased activity as buyers and sellers in the M&A market.

“The ongoing crisis in the euro zone, coupled with low asset values in the US, has encouraged countries which are not traditionally seen as acquirers, such as Indonesia and Thailand, to take their war chests and go bargain hunting in developed markets,” David Simpson, KPMG’s global head of M&A, said in a statement.

The report is the latest to indicate a geographic shift in the M&A landscape.

The number of Chinese companies and investors completing deals in developed markets rose to 39 in the first half of 2012, according to the KPMG research. That is one of the top figures in Chinese developed-market acquisitions over the past seven years.

Simpson said Chinese activity includes deals by state-owned enterprises, such as China Investment Corp.’s acquisition of a stake in Thames Water, as well as acquisitions by industrial market companies seeking technology and overseas distribution capability.

Meanwhile, China became less of a target for international acquisitions. The 75 acquisitions in China by companies and investors from developed markets in the first half of 2012 represented a seven-year low; that was half the number of developed-market purchases of Chinese companies that took place in the busy second half of 2007.

Domestic deal activity in China in the first half of 2012 dropped by 25% compared with the same period in 2011, according to a PwC analysis. Strategic deals into China by foreign buyers were down 42% compared with the first half of 2011, according to PwC.

But David Brown, the leader of PwC’s Greater China Private Equity Group, said in a statement that the higher volume of overseas acquisitions by Chinese firms and investors seems likely to continue.

“The number and size of transactions will grow, driven by a number of factors including the increasing experience and confidence of the participants,” Brown said. “Increasing support from Chinese domestic financial institutions and also the private-equity industry will also enable buyers to take advantage of opportunities as vendors respond to difficult conditions in their home markets.”

Japanese companies and investors also increased in prominence in the M&A market with 65 acquisitions in emerging markets in the first half of 2012, a high for the last seven years, according to KPMG. Simpson said Japan in 2012 has increased its push for international assets, with Himeji, Japan-based Glory Ltd.’s acquisition of UK cash-handling equipment company Talaris Topco among the most significant deals.

Although the Chinese and Japanese made increased acquisitions, corporations in the United States remained the most active dealmakers, according to the KPMG report. US companies and investors accounted for 16% (108 of 661) of the emerging-market acquisitions by companies in developed markets. But that was down 33% from the 160 acquisitions made by US companies and investors in the first half of 2011.

The KPMG survey also showed that: 

  • Deals in which developed-market companies completed purchases in high-growth markets fell to their lowest level since 2005, with 661 total transactions,

  • M&A activity in the UK was slow. UK acquisitions in high-growth economies numbered just 51, down from 72 in the second half of 2011. And there were just 16 acquisitions of UK companies by high-growth market firms, a decrease from 25 in the second half of 2011.

  • Brazil, which is destined for increased international visibility as host of the World Cup in 2014 and the Summer Olympics in 2016, remains a favourite acquisition target. Brazil was the most popular emerging-market target for deals by US companies, with 25 completed in the first half of 2012.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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