Global deals get thecoldshoulder
Executives walk away from emerging markets
IN A YEAR of potentially record global dealmaking, executives are turning a cold shoulder to buying companies in China, Brazil and other emerging markets.
The culprits: geopolitical uncertainties, market and currency volatility and a slump in commodity prices. Deals to buy companies in emerging markets are headed for their quietest year since 2009 – at a time when the dollar amount of global transactions this year is poised to surpass the $4.2 trillion (R60.4trln) achieved in 2007, according to data.
“People are really worried about instability in emerging markets and they’re turning their eyes to established economies,” David Avery-Gee, a corporate partner at law firm Linklaters in London, said. “For the first time in many years, Western companies are thinking twice before expanding into emerging markets via mergers and acquisitions.”
After jumping last year, acquisitions in developing countries are down almost 10 percent this year, according to the data. By contrast, more than 70 percent of the $3.5trln in deals announced this year involve both a buyer and target based in North America, western Europe or the developed Asia economies, the data show, a rise of 34 percent from last year.
Growth prospects
In Brazil, where economists predict the economic downturn will turn into the nation’s longest recession since the Great Depression, inbound deals are down 27 percent year on year. There has also been only one initial public offering in the country, raising just $229 million, compared with 2013 when companies raised more than $8 billion.
Concerns about a slowdown in China have stifled acquirers’ interest in the country. Deals from developed countries are down 17 percent to $9.8bn, Bloomberg data shows. Initial public offerings worth about $1.76bn have been cancelled or postponed, more than double last year’s number.
“Companies that invest in China are being challenged by shareholders that worry about the country’s growth prospects,” Sophie Javary, the head of corporate finance for Europe, Middle East and Africa at
Some firms, like Anheuser-Busch InBev, are still willing to take the risk in less stable economies.
BNP Paribas, said.
Those deals that do happen in emerging markets are sometimes driven by favourable currency rates that translate to a lower purchase price. In March, British American Tobacco bid about $3.5bn for the stake it doesn’t already own in Souza Cruz, Brazil’s biggest cigarette maker, taking advantage of a plunging real to expand in Latin America.
And some companies are still willing to take the risk in less stable economies, as shown by Anheuser-Busch InBev’s $107bn purchase of brewer SABMiller. The Belgian brewer could benefit from access to emerging markets in Latin America and Africa, where its target derives about 80 percent of its revenue.
Beyond the consumer sector, telecoms companies have also shown an interest to expand in emerging markets. John Malone’s Liberty Global agreed to buy Cable & Wireless Communications on Monday in a cash-and-stock transaction valued at £3.5bn (R76.5bn), extending the US billionaire’s cable empire deeper into Latin America.
Meanwhile, some companies based in an emerging market are not sitting still awaiting a buyer. They’re starting to look outwards, and expanding into more stable, developed economies.
State-owned China National Chemical Corporation was in talks to buy the Swiss pesticide maker Syngenta, people familiar with the matter said last week. If a deal goes ahead it would be the biggest Chinese acquisition – and give the country a major position in the global agriculture industry.
Remake
In March, Li Ka-shing’s Hutchison Whampoa agreed to acquire Telefonica’s O2 unit, creating Britain’s biggest wireless provider by customers and marking a milestone in the billionaire’s efforts to remake the Hong Kong conglomerate.
“Chinese businesses have been particularly aggressive in buying European assets with a foothold in China,” Javary said, citing deals such as ChemChina’s €7.1bn (R108.7bn) purchase of a stake in Italian tyre maker Pirelli.
African companies are also seeking access to consumers and investors in developed countries. Brait, an investment company controlled by South African billionaire Christo Wiese, has increased its exposure to the UK high street this year by acquiring stakes in health-club provider Virgin Active, women’s clothing retailer New Look and budget supermarket chain Iceland Foods for a combined £1.7bn. – Bloomberg