Developments in 1997
Developments in 1996
Asia Pacific
Central and Eastern Europe
Western Europe
United States
Latin American region
The value of worldwide cross-border mergers and acquisitions in the first half of 1997 was US$ 130.1 billion, compared with US$ 155 in the second half of 1996. However, the number of deals continued a declining trend, falling from 3,100 in the first half of 1996, to 2,800 in the latter half, and 2,400 during the first half of 1997. Clearly the average of cross-border investments has risen significantly.
Within the total, the number of US$ I billion plus deals declined in number, but their value has steadily increased. For the three consecutive periods comprising the first half of 1996, second half of 1996 and first half of 1997, the number of deals and their values were respectively: 18 (US$ 39.7 billion), 28 (US$ 52.5 billion) and 22 (US$ 41.8 billion).
The US retains its status as the most popular target for international companies. Inward investment into Western European countries appears to have declined in the first half of this year. However, Britain’s status as the most powerful magnet for inward investment in Europe is undiminished and it is significant to note the high level of investment between different European countries. A number of "mega" deals have impacted strongly on headline figures for the first six months of the year, with the main beneficiaries being Germany and the Netherlands.
Emerging markers are bucking the Western European trend. Foreign deals in Central and Eastern Europe rose to US$ 8.2 billion from the US$ 2.3 billion in the second half of last year, with both Kasakhstan and Russia achieving substantial increases in the value of inward deals and continuing interest in Poland.
Countries in Latin America are increasingly popular with foreign corporate investors, with Brazil, Venezuela, Argentina and Mexico the principal beneficiaries of US$ 16.5 billion of inward corporate investment in the first half.
In the Asia Pacific region, which recorded US$ 16.4 billion deals, China remains a prime target for international companies, but Hong Kong also exerts a powerful pull, regardless of concerns about the handover of political power. Australia, the Phillipines and Indonesia continued to be attractive to foreign investors. Investment patterns in Asia Pacific also reflect countries in the region investing heavily in each other.
The total value of world-wide cross-border mergers and acquisitions rose in 1996 for the eighth year running, reaching a new record of US$263 billion, up from US$237 billion in 1995.
Individual transaction values also increased by approximately 25%, reflecting in excess of 5,500 transactions in 1996 compared with 6,000 in 1995, according to the eighth annual survey of global take-over activity by KPMG Corporate Finance.
The cross-border M & A market is still dominated by countries such as the United States, the United Kingdom and Germany in terms of inward and outward investment flows, according to KPMG Corporate Finance Committee Chairman, Dickin Drew.
Worldwide, the US topped the UK as a target for foreign predators. US companies attracted a record US$68.03 billion of mergers and acquisitions from abroad in 1996, up from US$61.42 billion in 1995. Sixteen megadeals were realised by foreign investors in the US of which 11 were investors from Western European countries.
Sales of UK businesses to foreign companies reached record levels in 1996, as Britain confirmed its status as the most popular destination in Europe for overseas acquirers. This is underlined by the fact that foreign take-overs of UK firms in 1996 exceeded the total for all other European Union countries combined. Overall investment into Western European developed markets decreased in 1996 which, according to Drew, reflects growing interest in emerging markets. After the US, the most popular destinations for corporate predators were China, France, Canada, Germany and Australia.
US foreign acquisitions fell slightly to US$62.9 billion in 1996. As a result, the US - for the first time in several years - became a net seller of businesses internationally last year.
Britain remained the biggest buyer of overseas businesses of any European country. However, German companies continued their climb up the league table of international predators, increasing their overseas acquisitions last year by over 20% to US$27.7 billion.
American firms spent nearly US$20 billion on UK take-overs, up from US$13 billion in 1995 and accounted for 6 of the 10 largest British firms sold into overseas hands last year.
German and French companies, which were major buyers of UK firms in 1995, substantially reduced their investments in Britain last year However, their place was taken up by Swiss, Danish and Norwegian buyers, who together acquired nearly US$9 billion of British businesses in 1996.
Among emerging markets, Latin America continues to exert a stronger pull than Eastern Europe for international investors because of their relative political and economic stability (Venezuela, Argentina, Chile, Colombia and Mexico all recorded substantial increases in inward investment last year, the survey shows).
Acquisitions of Japanese companies by foreigners - for long a rarity - rose substantially, from US$1.6 billion in 1995 to US$4.8 billion in 1996, while purchases abroad by Japanese firms fell by nearly a third to US$12.0 billion.
After a sharp fall in foreign acquisitions and joint ventures in China in 1995, western businesses recovered their appetite for the country, increasing their investment to US$13.9 billion in 1996 from US$12.0 billion in the previous year.
In terms of total transaction value the production and distribution of electricity and gas was the most active sector with US$23.6 billion closely followed by oil and gas (US$21.4 billion) and banking and finance (US$21.0 billion). Most megadeals were in the chemical industry, which accounts for a total transaction value of US$19.5 billion.
Activity in the insurance sector tripled from US$3 billion in 1995 to US$12.8 billion in 1996. Changes to insurance legislation, renewed interest in life insurance and the opening up of national borders have led to a flurry of activity on the mergers and acquisitions front, particularly in Europe. The appearance of new players and products has caused traditional companies to sit up and take note.
China continues to be leading investment target in Asia Pacific region
China continues to attract more inward investment deals than any other country in South East Asia. During the first half of 1997, China attracted 179 investment deals valued at US$ 4.4 billion, compared to its closest rival India. While the number of deals targeting China fell slightly when compared to the second half of 1996 — during which 183 corporate investments were made — the value of the deals fell substantially from US$ 5.5 billion in the second half of 1996.
The biggest investors in China were Japan (US$ 952 million), US (US$ 923 million), Hong Kong (US$ 577 million) and Singapore (US$ 516 million), underlining how the economies of Asia Pacific are becoming even more closely inter-related. Meanwhile, China’s corporate investments in Hong Kong boosted its outward investment from US$ 250 million in the second half of 1996 to a total of US$ 4.5 billion in the first half of 1997. This made China a net outward investor for the first time in several years. However, the value of Chinese investments was largely determined by two ‘"mega" deals’ in Hong Kong — the US$ 2.1 billion purchase of China Light & Power Company by the Chinese Government, and the US$ 1.2 billion investment by China Telecom in Hong Kong Telecommunications Ltd.
John Anderson from KPMG Corporate Finance in Melbourne, Australia says economic reform continues to attract investors, powering the rise of China as an economic superpower. "The way China deals with Hong Kong is being closely studied by those overseas investors who are still watching from the sidelines. So long as no negative signals start to emerge, there is every reason to believe that China and Hong Kong between them will continue to dominate inward investment in the region."
As the second most successful Asia Pacific nation in attracting investment deals, India’s 68 inward transactions in the first half of the year were valued at a total of US$ 1.2 billion — a significant drop from the 90 deals valued at US$ 2 billion made during the second half of 1996. However, a far broader spread of countries invested in India than was the case for most other Asia Pacific states; major investors in India were Switzerland (US$ 560 million), the UK (US$ 178 million) and Germany (US$ 102 million).
Elsewhere in Asia Pacific, Australia was the third most attractive inward investment target in Asia Pacific, benefiting from 42 deals valued at US$ 3.1 billion, compared with 84 investments totalling US$ 2.8 billion in the second half of last year. Hong Kong attracted 24 investment deals totalling US$ 600 million — a decrease from the 39 deals totalling US$ 1.2 billion invested in the territory during the second half of 1996.
The Philippines was a major recipient of inward investment, attracting US$ 400 million of foreign deals during the first half of the year. The influx of overseas companies was led by Australia’s Coca-Cola Amatil, which paid US$ 1.9 billion for Coca-Cola Bottlers Philippines, and included several major investments from the UK and Malaysia.
While Japan has traditionally been the leading outward investor from the region, this year its US$ 4.4 billion of outward investments was exceeded by Korea, which spent US$ 4.8 billion outside the country — including Daewoo Corporation’s US$ 1.4 billion merger with Kazakhstan’s Kazaktelekom, the postal services and telecommunications organisation. Inward investment into Japan declined sharply from US$ 1.7 billion in the second half of 1996 to US$ 112 million during the same period this year.
The number of investment deals targeting Indonesia slumped from 51 in the second half of 1996 to 13 in the first half of this year — however the total value of investment made remained about the same — US$ 1.3 billion from January to June this year. Major investing countries in Indonesia were Japan (US$ 480 million), Hong Kong (US$ 350 million) and Korea (US$ 228 million). Indonesia was one of the few countries in the region to record a net outflow of corporate investments, after the country’s Setdco Group spent US$ 2.2 billion buying Kazakhstan oil and gas group Mangistaumunaigaz.
Singapore attracted US$ 119 million of inward investment in the first half of 1997 — a relatively low figure compared with other Asia Pacific countries and well down on the second half of last year, when nearly US$ 900 million was invested in the island. However, only Chinese companies invested more in other markets than Singaporean companies, which made outward investments of US$ 2.2 billion in the first half in a broad range of countries including the US (US$ 836 million), UK (US$ 831 million) and China (US$ 516 million).
Investment deal-flows both in and out of Taiwan slumped during the first half of the year, with inward investment plummeting from 23 deals valued at US$ 823 million in the second half of 1996, to six deals worth US$ 66 million during the first half of this year. Foreign investment by Taiwanese companies increased from US$ 164 million in the second half of 1996 to US$ 308 million so far in 1997.
Poland and Russia continue to dominate direct corporate investment in Central and Eastern Europe
Poland and Russia continued to be the most popular targets for direct, corporate investment in Central and Eastern Europe during the first half of 1997.
Of the total 111 investments made in Central and Eastern Europe, the main beneficiaries were Poland (21 deals valued at US$ 1.2 billion), Russia (20 deals valued at US$ 1.1 billion), the Czech Republic (18 deals valued at US$ 163 million) and Hungary (17 deals valued at US$ 33 million). Also of note was investment in Kazakhstan during this period, which benefited from two ‘"mega" deals’; the Indonesian company Setdco Group purchased the Kazakhstan oil and gas company Mangistaurnunaigaz for US$ 2.3 billion, and Korea’s Daewoo Corporation invested US$ 1.4 billion in Kazaktelekom, the post and telecommunications company.
Overall, the number of investments in Central and Eastern European countries has declined during the last eighteen months, from 192 during the first half of 1996 to 111 for the same period this year. However, during the same time period, the value of investments increased from US$ 7.0 billion to US$ 8.3 billion.
KPMG’s International Corporate Finance Committee Chairman Dickin Drew says the underlying picture for Central and Eastern Europe is that ‘the Big Four’ — consisting of Poland, Russia, the Czech Republic and Hungary — continue to attract most of the inward investment deals. "This is mostly because their infrastructure and economies are more developed than those of other countries in the region. However, during the first half of the year, Kazakhstan’s natural resources also proved to be a magnet for major corporate investors."
Poland’s 21 inward investment deals during the first half of the year represented a decline from the 33 deals for the latter half of 1996, but the total value of inward investment increased from US$ 550 million for the second half of 1996 to US$ 1.2 billion for the first half of this year. The 20 investments in Russia during the first six months of the year, valued at US$ 1.1 billion, also represented a decline in number but increase in value from the 27 deals worth US$ 634 million confirmed in the second half of last year.
Elsewhere in Central and Eastern Europe, inward investment to Hungary decreased significantly from 26 deals totalling US$ 502 million in the second half of 1996, to 17 deals worth US$ 33 million in the first half of 1997. The Czech Republic, on the other hand, saw inward investment rise from 12 deals worth US$ 88 million, to 18 deals worth US$ 163 million for the same time period.
Britain remains favourite target in Europe for international companies
The UK remains the most popular destination in Europe for international corporate investors. The level of foreign investment into Western European countries was little changed from the last half of 1996. Excluding ‘"mega" deals’, the region recorded 950 inward investment deals in the first six months of 1997, worth a total of US$ 26.3 billion, compared with 1,062 worth US$ 30.5 billion in the previous period.
However, the UK continues to attract more interest from foreign corporate buyers than any other European country. It attracted 211 deals worth US$ 9.1 billion from foreign buyers in the first half, down from US$ 10 billion in the previous six months and US$ 8.8 billion in the first half of last year.
France remains the second most popular target in Europe for foreign companies, recording 140 inward investment transactions in the first half of , down from 162 in the previous six months. Germany follows with 116 deals, against 150 in the last half of 1996.
In value terms, US$ 3.7 billion of foreign corporate investment (excluding ‘"mega" deals’ such as the US$ 11 billion Roche takeover of Boehringer Mannheim) flowed into Germany — down 14 percent on the US$ 4.3 billion invested there in the second half of last year but 50 percent higher than the US$ 2.2 billion recorded in the first six months of 1996. France attracted US$ 4.5 billion in the first half of 1997, compared with US$ 4.8 billion in the previous six months.
British companies also retained their status as the biggest international investors from Europe. They struck 276 deals abroad in the first half, against 156 by French companies and 122 by Dutch firms. In value terms — and excluding ‘"mega" deals’ such as BT/MCI — British businesses invested US$ 11.2 billion abroad in the first half of 1997, compared with US$ 13.5 billion in the previous six months.
International Corporate Finance Committee Chairman Dickin Drew says that inward investment into Western European countries appears to have declined in the first half of this year, but Britain’s status as the most powerful magnet for inward investment in Europe is undiminished. "A number of ‘"mega" deals’ have impacted strongly on headline figures for the first six months of the year, with the main beneficiaries being Germany and the Netherlands."
"It is significant to note the high level of investment between different European countries. This is reflected by investment patterns in Asia Pacific, where countries in the region are investing heavily in each other."
The survey shows that foreign corporate investment in the UK is coming from a wide range of countries: the United States (113 deals worth US$ 4.6 billion), France (14 deals totalling US$ 320 million) and Germany (three deals worth US$ 100 million). The most popular sectors targeted by overseas firms in the first half were business services (US$ 2.3 billion), oil and natural gas extraction (US$ 1.4 billion), and electrical and electronic engineering (US$ 1.1 billion).
US companies keep centre stage, spending more but targeted less often
The US continued to drive global M&A, but the picture has shifted in the first half of 1997. KPMG found that US firms announced US$ 28.1 billion in spending on 683 targets abroad, up 12 percent from US$ 25 billion involving 806 targets during the first half of 1996.
"The continued strong dollar and our stock market here powered US cross-border strategies," notes Blum. "In terms of foreign spending here, the same factors contributed to a decline in spending on US targets, to US$ 26.5 billion on 371 deals, down 25 percent from US$ 35.4 billion in 1996’s first half for 441 US targets, as purchasers abroad were deterred by higher corporate values here. The US will probably be the world’s favourite target for years to come, because we’re the world’s largest and most stable consumer and industrial market, but the cost of entry here has got a lot steeper lately."
The medical field, historically an area where purchasers have stayed close to home, emerged in the first half of 1997 as an important focus for cross-border deals. Several large deals contributed to a mid-year M&A total of US$ 14.3 billion, almost triple the US$ 5.5 billion announced in the first half of 1997.
Utilities continue to hold the spotlight in 1997, with cross-border spending almost doubling from US$ 6.9 billion to US$ 12 billion. "Strategic M&A moves by utilities are driven by global privatisation and US deregulation," Blum explains. "Among all of the most heavily targeted global industries, only the utilities field has been targeted by more purchasers this year than last."
Also increasingly popular in 1997 was telecommunications, a field where purchasers spent US$ 11.6 billion, up 186 percent. "Continuing waves of deregulation and new technology seem to be disrupting the status quo in these fields, creating consolidation and vertical linkages between strategic players both large and small," says Blum.
These industry shifts in M&A spending may have masked important changes in the geography of global activity, according to KPMG. For example, targets in the Pacific Rim, including China, attracted US$ 21.9 billion in 371 announced purchases through mid-year, down six percent and 44 percent respectively from US$ 23.3 billion spent on 657 purchasers during the same period last year. Latin America has emerged to rival the Pacific Rim as a global target, attracting US$ 16.9 billion through mid-year, up 160 percent from the first half of 1996.
"These global shifts, including growth in total global M&A spending, occurred despite the smaller roles played by traditionally active German and Japanese purchasers in 1997," notes Blum. "This year we’re seeing broader purchaser participation in the global M&A marketplace. Eleven countries have spent at least US$ 4 billion each on targets abroad as of mid-1997, versus only six last year."
The size, nature and structure of global purchases have also changed in 1997. For example, through mid-year, purchasers spent US$ 42 billion on 22 cross-border ""mega" deals", which KPMG defines as transactions with prices over US$ 1 billion, up a modest five percent from US$ 40 billion spent on 18 "mega" deals in the first half of 1996.
"mega" deals this year have involved purchasers and sellers in more parts of the world. In 1997’s first half, mega-deal purchasers comprised firms from 13 different countries, compared to just 9 in the same period last year. Targets in the US and UK, perennial favourites, comprised well under half (nine of 22) of "mega" deals in the first half of 1997, down sharply from two thirds (12 of 18) in last year’s first half, according to KPMG’s survey.
Foreign corporate investment in Latin America reaches new peak — KPMG Corporate Finance survey
Latin American countries are benefiting from a continuing boom of direct corporate investment into the region. US$16.5 billion has poured into South American countries through corporate deals in the first half of this year — slightly up on the US$ 15.1 billion in the second half of 1996, an increase of 170 percent on the US$ 6.1 billion invested in the region during the first six months of 1996.
The principal targets for foreign investors so far this year have been Brazil (US$ 3.9 billion), Venezuela (US$ 3.6 billion), Argentina (US$ 2.9 billion), Mexico (US$ 2 billion), Chile (US$ 1.7 billion) and Colombia (US$ 1.1 billion).
The level of foreign investment by South American companies reduced to US$ 1.7 billion in the first half of 1997 from the record US$ 3.6 billion in the second half of 1996. Panamerican Beverages’ US$ 1.1 billion purchase of Venezuela’s Coca Cola made Panama the largest cross-border investor in the region, with both Argentina and Mexico spending more than US$ 200 million on external investments.
David Bunce from KPMG Sao Paulo, Brazil, says economic and political stability, combined with market liberalisation, are making most Latin American countries increasingly popular with foreign investors.
"This is particularly true for companies from the US, Britain, Portugal and Spain, which have been leading the dash for deals in the region. Any lingering effects from the Mexican peso crisis which affected the whole Latin America region, have now vanished. In fact, Mexico itself enjoyed over US$ 2 billion of investment in the first half of 1997."
In the first six months of the year, Brazil attracted two US$ 1 billion-plus "mega" deals. The US$ 1.4 billion acquisition of Banco Bamerindus Do Brasil by Britain’s HSBC Holdings, and the US$ 1 billion purchase of electricity company Cemig by a US consortium including AES Corporation and Southern Electric-LED.
These two deals contributed to Brazil’s total inward investment of US$ 3.9 billion, compared with US$ 3 billion in the second half of 1996 and the US$ 1.6 billion invested in the country during the same period last year, although the number of investments made fell from 70 in each half-year period of 1996 to 42 in the first half of this year. Apart from the UK and US, other major investing countries in Brazil were Portugal (US$ 392 million) and Spain (US$ 220 million).
Venezuela also benefited from two "mega" deals — the takeover of Coca Cola by Panamerican Beverages for US$ 1.1 billion and Texaco’s US$ 1 billion joint venture with a consortium of Venezuelan companies comprising Hamaca Oilfield, Corpoven SA, Phillips Petroleum and Arco Atlantic Richfield. Other American companies took the balance of total inward investment in Venezuela to US$ 3.6 billion during the first six months of 1997, down slightly from the US$ 3.9 billion during the first six months of 1997 but a huge increase over investment levels in previous periods.
As the third largest beneficiary of inward investment, Argentina’s US$ 2.9 billion inflow reflects a continued increase in the number and value of transactions since the beginning of 1996. Spanish companies were by far the largest investors in Argentina, spending US$ 1.8 billion in the country, while the UK was the second largest investor, spending US$ 600 million in Argentina.
The US$ 1.7 billion inward corporate investment into Chile was well ahead of the US$ 545.9 million recorded in the second half of last year and up from the US$ 1.6 billion invested in the first half of 1996.
Investment in Mexico of over US$ 2 billion was in line with the latter half of 1996 (US$ 2.3 billion) and is nearly four times the amount invested during the first half of 1996. US firms were the principal investors, spending US$ 1.5 billion in the country, followed by the UK (US$ 300 million) and Spain (US$ 166 million).
Colombia has also become a confirmed target for investment with inflows of more than US$ 1 billion in two consecutive six month periods (US$ 1.2 billion for the first half of 1997, US$ 1.7 billion during the second half of 1996) reflecting huge increases over the extremely modest US$ 11 million invested in the first half of 1996.