The UK was the number one major European economic target for inbound deals from the emerging markets during the second half of 2015, according to KPMG’s Cross-Border Deals Tracker.
The dataset analysed deal flows between 15 developed economies (or groups of economies) such as UK, US, Oceania, and Hong Kong and 13 high growth economies (or groups of economies), such as Brazil, Central & Eastern Europe (CEE), India and South Africa. It found that UK companies were involved in 45 inbound, completed deals during July-December 2015 – an increase of 10 (nearly 30 per cent) from the previous six months.
This placed the UK only a narrow second behind the US in terms of number of completed deals – with the US seeing 47 deals during the period.
Increased deal numbers came particularly from: India – one to six; The Association of Southeast Asian Nations (ASEAN) –- nine to 15; South America excluding Brazil – one to three. In fact, the volume of deals from India was the highest six-monthly total since the second half of 2012, while the volume of inbound deals from ASEAN was at a 10-year high.
Andrew Nicholson, head of M&A for KPMG in the UK, says: “Both the US and UK have been seen by many as being at the forefront of the economic recovery, so it is not surprising that both saw an influx of interest from emerging market suitors acquiring target companies.
“Buyers coming into the UK came particularly from countries such as India, which have strong historical and commercial ties to this country. And yet when UK companies were looking to acquire in emerging markets, the largest component – 17 out of a total of 57 deals – were transacted in Central and Eastern European countries. This is due to it having many strengths for investors including both delivered and forecast GDP growth, a stable macro-environment, a strategic geographic location, relatively low corporate tax rates and a considerable consumer base making CEE nations attractive destinations for investment.”
Outbound transaction levels were, however, less buoyant. The overall volume of deals out of the UK into emerging markets fell by 14 percent, from 66 to 57. Most emerging markets saw a decline in M&A transactions from the UK and this picture was reflected more widely, with other developed countries doing fewer deals in emerging markets. This was largely ascribed to slower growth rates in China, fears over the impact of potential interest rate rises in the United States and continuing challenges in several key markets, including Russia, the Middle East and South America.
Looking at the impact of the uncertainty created by the EU Referendum on the UK M&A market, Andrew Nicholson adds: “There's still plenty of debt and equity capital looking for a return so domestic deals remain active unless the deal has a significant currency risk. Overseas investors are factoring in Brexit risk so with the vote only ten weeks away, they are not minded to progress transactions until the outcome is known."
