Companies

Emerging markets leading global M&A table

By Liu Yiyu (China Daily)
Updated: 2011-05-14 09:51

BEIJING - An increasing number of companies from emerging markets, led by China and India, have taken control of businesses in developed economies since 2002.

That's according to a recent study by the consulting firm, A.T. Kearney.

The number of cross-border merger and acquisitions (M&A) by businesses from emerging countries grew 26 percent in 2010, almost three times higher than the overall market for major M&A transactions.

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Acquisitions by Chinese companies have been growing at by far the fastest pace, with an annual growth rate of 42 percent from 2006 to 2010.

Securing supplies of raw materials, especially in the mining sector, is becoming an increasingly important motive for buyers from developing countries, along with acquisition of innovative technology and market access.

"Chinese buyers are paying several times more than what will be required in the market because of a lack of experience," said Bernhard Hartmann, managing director of A.T. Kearney Greater China.

"Chinese buyers often over-value the target's future because of inexperience."

To underline that point, on May 12, shares in Kalahari Minerals Plc, a resources company with interests in uranium, gold, copper and other base metals in Namibia, traded 22 percent lower than an offer price of 290 pence a share made by China Guangdong Nuclear Power Group.

The company, the nation's second-largest builder of reactors, made the offer before the March 11 earthquake and tsunami triggered a nuclear crisis in Japan.

The deal was proposed at a 17 percent premium to Kalahari's 20-day average prior to the announcement on March 7.

Unlike Japan, which is constrained by a lack of resources and secures supplies by long-term contracts, Chinese companies are keen on gaining ownership of the resources, which can lead to an adverse political reaction in the target's home country.

"Raw materials acquisition is by nature very political," said Hartmann. "As long as the political issues are resolved, the big deals will go well."

To acquire know-how and innovative technologies may be more challenging as it is often very difficult to maintain innovation in a Chinese environment, according to Hartmann, adding that he has not seen much success so far.