Companies in high-growth markets (HGM) invested US$161 billion into mature market companies between 2008 and 2012, outstripping their combined investment of US$151 billion in the opposite direction, according to PwC report.
In its new report titled ‘Resetting the Compass: Navigating success in deal-making for mature market sellers and high growth market buyers’ it said that the past five years reported greater deal value flows from high growth markets to mature markets, as opposed to the contrary. This surge of investments into mature markets reflects the changing dynamics of cross-border mergers and acquisitions (M&A).
In 2013, the volume of outbound deals from the Gulf Cooperation Council (GCC) to mature markets ranked higher than the average reported over the last five years.
The UK and Europe continue to hold strong appeal for GCC buyers, accounting for the majority of mature market deals from the GCC. Although real estate in the UK has been a good source of activity in recent years, the value of deals from the GCC into Europe in recent periods has not reserved a trend, as volumes have. Whilst there have been fewer deals into the US (from the GCC) since the financial crisis; the trend may change with the US economy showing signs of growth.
“While HGM company acquisitions of mature market targets represent just 1.5% of global M&A activities and 5.3% of global cross-border deals in total , our studies show that this is on the rise” Hani Ashkar, PwC Middle East Deals Leader, said.
“Large and mid-sized private companies have now joined the state-backed investors who were among the first to seek investments in more mature market targets. The range of industries being targeted is also widening to include everything from energy, raw materials and engineering to media, retail and consumer goods companies”.
The GCC region’s sovereign wealth funds (SWFs) and state-owned enterprises continue to drive much of the outbound deal value but have cut back on the size of their overseas investments into mature markets since 2007/2008.
Notwithstanding, on average five outbound deals per annum have been responsible for 75% of total outbound deal values between 2006 and 2012.
In line with its strategy to establish Doha as a financial hub, Qatar has invested heavily in financial services, including stakes in the London Stock Exchange and numerous real estate assets. It has also made some higher profile financial investments, largely in the UK and France. The UAE and Saudi Arabia have both made numerous acquisitions to consolidate technology and know-how, particularly in areas such as energy and chemicals.
“Our research of HGM buyers has demonstrated that certain deal drivers are common to most HGM buyers but each specific market has its own nuances. This is particularly true for the Gulf region, where SWFs and state-owned enterprises have used M&A to diversify their financial reserves, invest in capturing technology within value chains they are experienced in such energy and petrochemicals, and develop sectors, such as semiconductors and aerospace, that will provide local employment and growth over the long-term,” Richard Rollinshaw, Partner, PwC, UAE, added.