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Singapore: one of the top targets for acquisitions by companies in emerging economies
Country is also third most active developed economy investor in emerging economies.
Singapore, together with the United Kingdom (UK) and the United States of America (US), are the most popular targets for acquisitions by companies in emerging economies, according to KPMG's latest Emerging Markets International Acquisition Tracker (EMIAT).
However, the half-yearly tracker of cross-border Merger and Acquisition (M&A) deals has also revealed that such emerging-to-developed (E2D) acquisitions in Singapore has fallen some 17 per cent between the first and second half of 2011.
E2D deals occur when trade buyers in emerging economies take at least a five percent shareholding in an overseas entity in a developed economy.
The number of these deals in Singapore faltered from 23 in the first six months of 2011 to 19 in the last six months of the same year.
While the US experienced a marginal fall in the number of E2D deals — from 47 to 45 — in the same time period, the number of deals involving emerging market acquirers of UK targets increased from 20 to 25 deals.
On the inversed developed-to-emerging (D2E) front when trade buyers from developed economies acquire shares in entities in emerging markets, Singapore has proven to be an avid investor, coming in third out of all the developed economies tracked.
In the second half of 2011, Singapore recorded 75 such deals, the highest for the country since 2005. This figure also represents a significant 27 percent increase compared to the first six months of the same year, when Singapore’s tally came up to 59 D2E deals.
Commenting on the findings, Ms Diana Koh, Head of Singapore Private Equity and Transaction Services , KPMG in Singapore, said that interest in Singapore entities by buyers in emerging economies are still at healthy levels.
"While the number of E2D deals in Singapore has dropped, the number we are seeing is still an increase from 2009 and 2010. As one of the leading financial hubs in the region, I believe Singapore will attract more investers from emerging markets as the global economy recovers," said Ms Koh.
The steady fall in emerging-to-developed (E2D) deals
Overall, E2D deals continued the decline which started in the first half of 2010.
The last six months of 2011 saw only 201 acquisitions of companies in developed economies by those in emerging economies. This is down from the previous six-month period where there were 214 deals.
The Europe (Other) region, comprising smaller European countries however experienced a clear upswing, which saw E2D deals over the same period increase from 13 to 22.
Said Ms Koh: "This is perhaps a reflection of their generally weaker economies in the face of uncertainties in the Eurozone, making them easier and cheaper prey for emerging market acquirers."
India overtakes China as the most active E2D acquirer
India purchasers are now the most active players in E2D acquisitions, with 37 deals during the second half of 2011 compared to China's 32.
Purchases by Malaysia saw a marked 53 percent rise, from 17 deals in the first half of 2011 to 26 deals during the latter half of the year.
Southeast Asia in general also saw a small rise in the number of acquisitions, from 34 to 37 deals, but every other emerging region apart from Brazil and the rest of South America saw the number of E2D deals fall.
Fall in developed-to-emerging (D2E) deals as well
Latest EMIAT deal statistics show a fall in the number of developed-to-emerging (D2E) deals in the last six months of 2011, ending two successive years of gradual growth since January 2009.
Some 705 D2E deals took place in the last six months of 2011, a drop compared to the 755 acquisitions during the previous six months.
"Companies adopted a cautious view to M&A because of the economic uncertainty, but significant interest in Southeast Asia still exists," commented Ms Koh.
China and Southeast Asia most popular for D2E deals
Indeed, China and Southeast Asia were the most active target markets for D2E acquisitions, albeit at lower levels compared to the first half of 2011.
In Southeast Asia for instance, deal volumes only fell about six percent from 135 deals in the first half of 2011 to 126 deals during the second half of the same year.
China saw only a four percent decline, from 98 to 94 deals comparing the two halves of 2011.
There was mixed performance among the BRIC economies, with only India showing an increase in companies being acquired by buyers from developed markets, from 54 deals in the first half of 2011, to 62 in the latter half.
Singapore active as an acquirer of emerging targets
In terms of the performance of developed acquirers of emerging targets, the US — which recorded 126 deals between July and December 2011 — was the most active and accounted for the most D2E acquisitions. Europe (Other) came in second, with 81 deals.
Singapore, with its tally of 75 D2E deals, is ranked third.
Said Ms Koh: "The robust investments by Singapore companies, especially in China and Southeast Asia, are a key indicator of its confidence in the Asian region as well as in the future of the economy."
Some 68 per cent of Singapore's investments in emerging economies during the second half of 2011 were in China and Southeast Asia.
Deals between emerging markets (E2E) continue to fall
The volume of deals between emerging acquirers and targets (E2E) continued to fall, reaching a similar level to 2006. The proportion of E2E deals to overall EMIAT deals also fell to 12 percent during the second half of 2011, the lowest since 2006/2007.
That E2E deals comprise such a relatively small proportion of total EMIAT deats is perhaps unsurprising, given that by definition, there will be fewer potential candidates to acquire. However, this does not explain why that proportion is continuing to fall.
While it remains to be seen whether deal volumes will rebound, Ms Koh commented: "Emerging economies are continuing to grow much faster than the developed world so we might expect deal volumes to be driven by cash rich emerging market corporates and companies from developed countries seeking growth opportunities.
"Confidence has been holding both sides of the equation back but pressures are increasing which must ultimately lead to higher deal flow."
Source: KPMG - GAI
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