The move last year by Chinese food manufacturer Bright Food to acquire Weetabix, the UK’s top-selling cereal, followed a series of high-profile acquisitions of European and North American labels by emerging market companies. The Chinese state-owned company’s acquisition of a 60% stake in Weetabix, which was completed in November 2012, signalled a growing trend of multinational corporations (MNCs) with roots in emerging markets purchasing businesses originating in developed countries.

During the same period, Mexican telecommunications group América Móvil announced its plants to boost its stake to 28% in the Dutch telecommunications company KPN, and Indian leisure company India Hospitality Corporation bought the UK’s ready-made food producer Adelie Food Holding for $350m.


Although uncertainties in the global economy have led to a decline in international mergers and acquisitions (M&A) in recent years, international investment activity in emerging economies has shown resilience. While M&A activity by MNCs from Europe and North America has been in decline as the global recession continues to be felt in the developed world, M&As by emerging market MNCs have been on the rise, says the Organisation for Economic Co-operation and Development (OECD).

“There is an incentive for these companies [in developing countries] to globalise and therefore acquire businesses in Europe and the US, the first reason being their need to create synergies through technology transfers, as they may be weak on the technology side,” says Jan Hoffmeister, managing director at Drooms, a global virtual data room provider. “Second, they are buying brand equity. It is very difficult to build a powerful brand and buying one of the world’s greatest brands at a reasonable price is a very good investment. They are also sitting on piles of cash, which is a good thing if you want to do M&A. We have been seeing a lot of Chinese buyers [engaging] in the smaller and middle-capitalisation technology transactions.”

Developing shift

Although most M&A activity has been initiated by companies in the developed world, since 2002 a paradigm shift has been under way according to management consulting firm AT Kearney. It found that deals between developing and developed countries grew at an annual rate of 19%, which was four times faster than deals conducted in either developing or developed countries alone.

The OECD found international M&A has declined from a peak of $1000bn in 2011 to $675bn in 2012, with the largest declines in Europe. Outward international M&A by European companies fell by 48%, in sharp contrast with international M&A by Latin American companies, which grew by 130%.

“The [global economic] crisis seems to have accelerated the trend a little, but before the crisis in 2007 we were beginning to see that emerging economies were increasing their share of global M&A and a lot of it was going to Europe,” says Michael Gestrin, a senior economist at the OECD.

“In absolute terms, M&A has been growing and we have recently seen more proactive M&A actions by the Chinese, the Indians and some Gulf countries, which are looking for opportunities,” adds James Zhan, director of the investment division at the UN Conference on Trade and Development. “If we look at it in relative terms, we also have to note that there has been a drastic decline in M&A deals by developed country MNCs. So that is why the [developing countries’] share has increased very rapidly.”

Although M&A activity from developing countries has been increasing, it would be a mistake to view the developing world as a monolithic bloc. Indeed, AT Kearney found that companies from China, India and Malaysia were initially at the forefront of M&A activity between 2002 and 2007, and these three countries alone accounted for 56% of the deals that took place. Although the range of developing country MNCs has increased in recent years, M&A activity is still restricted to a few key countries, says Pavle Sabic, solutions architect for Europe, the Middle East and Africa at analytics firm S&P Capital IQ.

“When looking at emerging markets, [S&P Capital IQ] bundled together Brazil, Russia, India, China, Mexico, Chile, Turkey, Malaysia, Thailand, Saudi Arabia, United Arab Emirates, Qatar and South Africa,” says Mr Sabic. “We found that there has been a 53.5% increase in M&A deals in these developing countries between 2011 and 2012. While global M&A deals have been down by 20% [during the same period], we have seen these emerging markets have picked up in terms of M&A activity. When we deconstructed that and asked ‘what are the regional preferences?’, we found that these developing countries upped their investments into the US and Canada by about 235% between 2011 and 2012.” 

State involvement

The growing role of state-owned enterprises (SOEs) in international M&A adds a further nuance to the picture. Mr Gestrin maintains that Chinese SOEs play a major role in M&A activity. “The story will continue to be dominated by China, [though] we could see companies based in Brazil and Mexico making some investments in Europe,” says Mr Gestrin.

Data from the OECD reveals international M&A by SOEs rapidly increased in 2012, accounting for $72bn worth of M&A activity, up from $60bn in 2011. China accounted for almost half of the total M&A by SOEs, representing 44% of global M&A by SOEs in 2012, followed by Canada, which represented 23% of all M&A by SOEs. “In the case of China, all of the oil majors are pretty active internationally,” says Mr Gestrin.

Indeed the move in October 2012 by Sinopec, China’s state-owned petrochemicals company, to purchase a 50% stake in Vesta Terminals B, a liquid bulk storage operator, from the Swiss commodity trading company Mercuria, reveals that M&A activity in the energy sector could increase in coming years. “You will see more Chinese oil companies in energy and mining,” says Mr Gestrin.

“When looking at where M&A is happening, the rule of thumb would be to look at the large cash and short-term investments,” says Mr Sabic. “Although the correlation is not one for one, there is a correlation between the two. [Examining] Petronas in Malaysia, its cash and short-term investments are one of the largest at $50bn and last year it made about 15 acquisitions. China National Petroleum Corporation has $44bn and it made about 11 acquisitions last year. If you go a little further down, [Russian energy] company Gazprom is at about $16bn, yet it made 54 acquisitions in 2012.” 

While M&A transactions into the energy sector in Europe grew by 265% between 2011 and 2012, Mr Sabic maintains that M&A into Europe’s telecommunications sector grew by almost four times during the same period. “The same sectors come up time and time again,” he says. “Within European markets, telecommunications, energy, healthcare materials and industrials seem to have the biggest transaction balances.”

US still on top

Although M&A from emerging market MNCs has been on the rise in absolute terms, data from the OECD reveals that in relative terms M&A transactions are still dominated by MNCs from the developed world. In terms of gross international M&A alone, and excluding international divestments, the US-based MNCs accounted for the lion’s share of transactions, representing $94bn-worth of international M&A deals last year. Japanese MNCs followed, representing $41bn, and Canadian MNCs were third, with $39bn-worth of transactions. China was the only developing country featuring in the top five, ranking fourth with $36bn in international M&A investments.

Pointing to his company Drooms as an example, Mr Hoffmeister says it is important not to lose sight of the bigger picture, where the developed world’s share of M&A significantly outweighs that of emerging markets. Although Europe’s sovereign debt crisis is still a concern for companies such as his, Mr Hoffmeister maintains that many developed world businesses still remain optimistic in their expansion strategies.

“We certainly see an upward trend with respect to transactions [from emerging economies],” he says. “Yet on a global scale, their impact is still relatively low because they cannot offset what is happening elsewhere. Our view is that the market is not bullish but it is robust. I also do not think what the emerging market [MNCs] are purchasing is offsetting what may be [declining] in the eurozone because a big bulk of the businesses are still within Europe and the US. Although the eurozone crisis cannot be overcome in a few months, I think Europe is on a good wave and it will grow in the right direction.”

While maintaining that MNCs from the developed world will continue to represent the vast bulk of M&A for the coming years, Mr Hoffmeister also believes that the growing share of M&A transactions from emerging markets is important, as it highlights a crucial shift among these corporations to a greater professionalisation of their services. “[Emerging market MNCs] are taking big steps forward, as I see them professionalising their whole set-up to execute transactions,” says Mr Hoffmeister. 

“We have to add some nuance to this,” says Mr Zhan. “If we are talking just about the stock, the investment stock of developed countries is still the largest and that is partly because it has traditionally been large for many decades. Yet you will see developing countries’ MNCs, particularly from China, India, Brazil, South Africa and the Gulf, gradually invest northwards in Europe and North America.”