China, Japan and India are paying more for quality European assets, bucking a trend of declining company valuations throughout the rest of the world, according to a report on global M&A trends.
The EBITDA multiples paid by these countries for deals abroad have been rising over recent years, increasing from 3.8x in 2010 to 5.7x in 2011 and 9.9x in 2012, with this level showing all signs of continuing during 2013.
The core driver behind the trend is the desire by Asian companies to seek out prized Western assets to boost their international footprints, such as China-based Bright Food’s high-profile acquisition of Weetabix in 2012. Despite a mixed bag of GDP figures from China, Japan and India, all three countries are looking abroad for big-name brands as well as industrial assets, which can bolster both their infrastructure and economy.
Since 2008, Asian buyers have been drawn to Europe by depressed multiples compared with their domestic markets, but increased demand in 2012 pushed up M&A volumes and valuations to 2006/2007 levels, despite the Eurozone crisis. At the same time, global EBITDA multiples fell in 2012 to 8.8x from 9.6x a year earlier, notwithstanding a surge in deal-flow in the final quarter of 2012.
Meanwhile, the proportion of deals taking place domestically in China rose by 16 per cent, as foreign buyers retracted based on the country’s rate of growth. Whilst in 2011 overall M&A involving Chinese companies was evenly split at 49 per cent domestic and 51 per cent inbound, this shifted to 65 per cent domestic and 35 per cent inbound during 2012.
These are some of the top findings from a report published today by global valuation specialists American Appraisal, Global M&A Valuation Outlook 2013. The report, now in its second year, draws on analysis of American Appraisal’s own data from deals compiled from its 27-country network of operations in 2012 combined with industry data on international corporate deal-flow.
Mike Weaver, managing director at American Appraisal, says: Asian firms with fat wallets are turning to European companies to fill up on quality assets. Luckily for Europe, these targets which comprise popular brands and industry leaders come at a price. There’s no doubt about it: China, Japan and India are willing to pay more than we’ve seen in recent history, a nod to Europeans sellers about who they should be flirting with the most.
"Ultimately, this global data is a timely reminder that M&A is always alive somewhere in the world; it simply bounces around between continents and sectors. It’s a popularity contest if nothing else. But in the end everything comes down to value."
