M&As zoom in BRIC nations

Emerging markets are likely to overtake developed countries in terms of international acquisitions in the next two to three years, while India has emerged as the most acquisitive among the emerging nations, a latest study says.

Deal flow between emerging and developed economies is beginning to converge as companies from the BRIC nations (Brazil, Russia, India and China) start to ramp up their mergers and acquisitions activity, according to global consultancy KPMG's Emerging Markets International Acquisitions Tracker.

"Four years ago, the emerging-into-developed deals were outnumbered by four to one. By the end of 2006, that ratio was down to just under three to one, and already in the first half of 2007, that gap has narrowed even further, with the ratio now being less than two to one," Ian Gomes, chairman of KPMGs New and Emerging Markets practice in the UK.

This begs the question as to when one will overtake the other certainly looking at current trends, its feasible that this crossover could happen within the next two to three years, Gomes said.

In India, a total of 32 outbound deals were recorded in the first half of 2007, "an impressive figure which puts the country well on target to beat the 50 deals which took place during the whole of 2006", the KPMG report said.

However, China still has some long way to go to catch up with India - which was easily the most acquisitive of the emerging nations, the report said.

"The large volume of outbound deals is indicative of the current mindset of many Indian companies; grow, acquire and utilise debt facilities to the full," Gomes said.

"However, I recommend a degree of caution as there is a danger that in their haste to hit the acquisition trail, they could end up over-paying for assets," Gomes added.

A total of 52 Chinese acquisitions were made by companies in the developed markets in the first half of 2007, well down on the 66 in the second half of 2006. At the same time, the number of deals going the opposite way showed its first significant increase in recent times, up from 8 to 14.

The research, which analysed deal flows between nine selected emerging economies and eleven key developed markets, shows that during the first six months of 2007, there were 67 emerging-into-developed deals taking place, against 126 developed-into-emerging transactions.

In contrast, a total of 119 emerging-into-developed deals had taken place in 2006, whereas there were 322 completions of the reverse kind, it said.

There is perhaps an assumption that deal flow involving companies from emerging economies would by and large be one-way traffic, as companies in developed markets seek to gain a foothold in those fast-developing territories.

However, the tracker dispels this theory, indicating that the hunted are fast becoming the hunters, with increasing numbers of companies in developing nations casting their eyes far beyond their own borders, putting their stamp on the international acquisition trail, Gomes said.

While China and India have been some of the most prolific of the emerging economies in terms of overseas acquisitions for some time now, other nations appear increasingly determined to play catch-up.

In Russia, M&A activity has accelerated over the past two years with Russian firms undertaking 23 overseas transactions in 2006, with another 11 completing so far this year.