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M&A deals in the BRIC countries drop in first half

There were 519 M&A deals valued at USD102.5bn in the BRIC countries during the first half of 2009, representing a 34 per cent decline in volume from the same period last year and a

There were 519 M&A deals valued at USD102.5bn in the BRIC countries during the first half of 2009, representing a 34 per cent decline in volume from the same period last year and a 41 per cent decline in deal value, according to mergermarket.

However, quarter-on-quarter analysis may suggest that recovery is not far off. Whereas overall quarterly deal values still exhibit wild fluctuations, the six-quarter declining streak for mid-market deal value has come to an end in Q2 2009 with a 47 per cent gain on the quarter. The report says this is a potential signal that M&A activity in the BRIC countries has finally bottomed out.

BRIC M&A activity was able to withstand the shock from the global financial crisis in late 2008. Deal values and volumes from the four BRIC countries (except for Brazilian deal volume) all managed to climb in Q4 2008 from their respective levels in Q3 2008, when global deal values and volumes fell sharply.

Activity took a sharp dip in Q1 2009, but has again bucked the global trend in Q2 2009 as deal values have increased by 117 per cent and deal flow by 30.1 per cent.

BRIC countries continue to increase their shares in global M&A deal-making. For H1 2009, BRIC M&A makes up 14.5 per cent of global M&A value, up from 12.3 per cent in 2008. The bloc also contributes to 13.4 per cent of global M&A volume, up from 11.2 per cent in 2008.

The gain can be attributed to Chinese M&A, where its global share in H1 2009 has increased to 8.3 per cent by value and 7.4 per cent by volume, from 5.8 per cent and 5.4 per cent respectively in 2008, while M&A activity in Brazil, Russia and India have largely remained the same in proportion to global M&A.

Incidentally, China is also the only BRIC country whose GDP is still forecast to grow in 2009; the nominal GDPs in Brazil, Russia and India are all expected to fall or remain flat in dollar terms in 2009 based on IMF estimates.

Out of the 10 largest deals involving BRIC countries in H1 2009 (including lapsed and withdrawn bids), seven of them were in the energy, mining and utilities sector.

Though not the most active sector in terms of volume, it is nonetheless the leading sector in deal value, making up 40.5 per cent in BRIC M&A value with 78 deals worth
USD41.9bn announced.

The demand for resources continues to be a key driver in domestic and outbound deal-making in three of the BRIC countries in H1 2009, with Brazil being the exception.

The energy, mining and utilities sector represents overwhelming proportions of total outbound deal values in Russia (72 per cent), India (84 per cent), and China (95 per cent) for the half year.

With 55 deals valued at USD22.5bn, the financial services sector has accounted for 21.8 per cent of total BRIC deal value.

The four largest deals in the sector are all stake sales in BRIC banking companies by European or American financial institutions to increase liquidity, including: Bank of America selling 5.78 per cent in China Construction Bank for USD7.3bn; UBS selling Banco UBS Pactual for USUSD2.5bn; RBS selling 4.26 per cent stake in Bank of China for USD2.4bn; and TPG selling 16.76 per cent stake in Shenzhen Development Bank for USD2.3bn. These four deals combined have made up almost two-thirds of the total deal value in the sector.

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