Mid-market opportunities remain as emerging markets acquirers expected to make a more significant impact on cross-border M&A in 2009

Published at 09:50 AM on 02 February 2009

Despite the global economic downturn, last year saw a record number of deals involving emerging market (EM) entities acquiring businesses in Western Europe. Although this upward trend is expected to slow in the first half of 2009, it will pick up again in the second half of the year, according to PricewaterhouseCoopers.

Chris Hemmings, global corporate finance leader, PricewaterhouseCoopers, commented:

“It will come as no surprise that we expect to see the impact of the tight credit markets and the parlous state of the global economy lead to a pause in the rate of growth in emerging market transactions in 2009. Overall deal values are likely to fall to around €30 billion from €45 billion last year. However, deal volume could rise to as many as 350 compared to the 256 recorded in 2008, as the average value of transactions declines. This number will be even more significant as a proportion of all deals in 2009. It reflects the fact that increasing numbers of mid-market companies (those worth up to €500 million) in Western Europe will be the favoured targets of emerging market acquirers.”

The UK and Germany will continue to attract most interest from EM acquirers in 2009 with the latter’s strong mid-market engineering base looking particularly attractive, as those companies’ access to capital becomes increasingly difficult. In 2008 the two countries accounted for 33% and 18% of deals respectively, according to Eastern Approaches, the firm’s guide to what European business owners should do to maximise the success of their cross-border transactions with EM buyers. Technology companies in the Nordic countries are also expected to make attractive targets for EM buyers.

Chris Hemmings, global corporate finance leader, PricewaterhouseCoopers added:

“There are still fundamentally strong, under-geared EM companies looking to acquire sound Western European targets. They will be motivated by a number of factors such as market expansion, securing more of the value chain in their activities, acquiring knowledge and technology, gaining greater economies of scale, getting access to and association with international brands and diversifying their risk exposures. Also, in the short term at least, EM investors will have the chance to purchase or invest in distressed targets in Western Europe.”

Sectors historically favoured by EM buyers are expected to retain their interest, such as motor vehicle components and construction technologies, which are currently suffering in the economic downturn but which, when transferred to emerging markets often experience growth.

Chris Hemmings, global corporate finance leader, PricewaterhouseCoopers, concluded:

“The falling valuations of western companies will not in themselves prove a compelling deal driver for many EM companies. Sovereign wealth funds, for example, which bought minority stakes in large Western European companies, have seen their investment values plummet as markets continue to slide. This year we would expect most acquisition activity to be at the lower end of the mid-market (€150 million or less) rather than the headline transactions of recent years and this activity will be motivated by strategic intent. Taken together, acquisitions by EM countries will make up a bigger proportion of global M&A in 2009 and this in turn will be larger than private equity’s share of the market”.

ENDS

 


Notes to Editors:


Electronic copies of Eastern Approaches, as well as an accompaying podcast, are available at www.pwc.co.uk/emergingmarkets. Hard copies are available from Amy Horrocks: [email protected] 

 

 

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