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backLATINtalk May, 2011

Latin American Companies Top Emerging Markets In Attracting U.S. Suitors: Survey

Latin American companies were the most popular emerging market targets for acquisitions by U.S. companies in the second half of 2010, according to KPMG International’s latest Emerging Markets International Acquisition Tracker (EMIAT) study. Those countries accounted for more than 40 percent of emerging market acquisitions made by U.S. companies during the period.

The KPMG study, which tracks completed deals in which an acquirer took at least a five percent shareholding interest, revealed that U.S. companies made a total of 116 emerging market company acquisitions in the second half of 2010, down slightly from 134 in the first six months, with Brazil (21), Central America and Caribbean (17), and other South American countries (10) among the most popular targets.

"We believe that Latin America remains an attractive market, with continued GDP growth forecasted, abundant natural resources and commodities, and rising domestic spending by brand-conscious consumers," said Mark Barnes, principal-in-charge of KPMG LLP’s U.S.-High Growth Markets practice. "Many firms in Latin America were ripe for acquisitions as they were undervalued, and there are still deals to be made."

"Brazil clearly stands out, because it is one of the fastest growing economies in the world," added Barnes. "Brazil has a strong, growing middle class with disposable income and an appetite for new goods and services. There are also significant opportunities going forward in specific sectors such as infrastructure and energy as the country gears up to host the 2014 World Cup and 2016 Olympics."

Other top targets for U.S. corporate acquirers in the second half of 2010 included India (16), China (15), South and East Asia (10), and Russia (10), according to the KPMG study.

Emerging Markets’ Interest in Developed Economy Targets Dips Slightly

"After a burst of activity early in 2010, the general expectation was that emerging and high growth acquisitions in developed countries would continue to increase," said Barnes. "Our latest EMIAT survey results show that emerging to emerging deals are picking up some speed, as companies shop for access to raw materials, energy sources and consumers in markets that may have many similar characteristics to their own."

Emerging and high-growth market companies made 239 acquisitions in developed economies (E2D deals) in the second half of 2010, down slightly from 265 during the first half of 2010, according to the KPMG study.

"The modest decline in acquisitions by emerging market companies in developed economies in the second half of 2010 may have reflected the falloff in consumer buying power and other economic uncertainty in developed nations," said KPMG’s Barnes. "But even at slightly slower rates of acquisition, the developed economies remain large, wealthy markets that present major opportunities for investment and expansion by overseas global companies."

Meanwhile, emerging-to-emerging (E2E) deals increased in the second half of 2010 with 132 total deals, up from 118 in the first half of 2010.

"Our survey results indicate that emerging market companies are becoming increasingly comfortable making acquisitions among their emerging market peers because there is potential to grow market share and introduce new products due to increasing demand," Barnes said.

For E2E deals, companies in South and East Asia (21), the Commonwealth of Independent States (CIS) (19), and China (15) were the most popular targets in the second half of 2010, according to the KPMG study. Russia was the leading emerging market acquirer in other emerging markets with 23 deals. South and East Asia and Malaysia each made 21 such deals.

For E2D deals, South and East Asia (40) was the leading emerging market acquirer of companies in developed economies in the second half of 2010, followed by China and India (each with 37).

After the other European countries category (49), the most popular targets for E2D deals in the second half of 2010 included the United States (39) and Australia (21), according to the KPMG study.

D2E Deals Remain Steady

According to the KPMG study, developed-to-emerging (D2E) deals increased slightly overall in the second half of 2010 – climbing to 815 deals versus 797 registered in the previous six-month period.

Following the other European countries category (262), the United States (116), Singapore (64), Canada (63), and the United Kingdom (53) made the most deals in emerging market economies.

For D2E deals globally in the second half of 2010, Russian companies were the most targeted (211). Other popular targets overall for D2E deals included South and East Asia (115), China (96), Central and Eastern Europe (80), and Central America and the Caribbean (58).

"Emerging markets continue to offer investors the opportunity for higher returns," said Dan Tiemann, KPMG’s Americas leader for Transactions & Restructuring. "Acquirers from developed companies who are prepared to manage the added risks will continue to seek customers and resources there."

About KPMG’s Emerging Markets International Acquisition Tracker Study

The study analyzed deal flows between 15 "developed" economies or groups of economies and 13 "emerging" and "high-growth" economies or groups of economies. The 15 developed countries or groups include the United Kingdom, the United States, Canada, Spain, France, Germany, the Netherlands, Italy, Australia, Singapore, Hong Kong, Japan, Europe (other), the Offshore Group and Oceania. The 13 emerging economies or groups include Brazil, Russia, India, China, Central & Eastern Europe, the CIS, Malaysia, South and East Asia, South Africa, Middle East & North Africa, sub-Saharan Africa, South America (excludes Brazil) and Central America & the Caribbean. All raw data within the EMIAT is sourced from Thomson Reuters SDC. Only those transactions classed as "completed" between January 2005 and December 2010 -- in which an acquirer took at least a five percent shareholding in an overseas company -- were included. Deals which involved backing by government, private equity firms or other financial institutions were not included.

About KPMG LLP’s U.S.-High-Growth Market practice
The KPMG LLP U.S.-High-Growth Markets practice provides audit, tax and advisory services to U.S.-based companies in their pursuit of outbound investment opportunities in high-growth and emerging markets such as China, India, Brazil, Russia, Mexico and Vietnam, and high-growth market-based companies with inbound investment interest in the United States.

Source: KPMG - GAI

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