U.S.-based companies led the way in completing merger-and-acquisition (M&A) deals with emerging and high-growth market companies in the second half of 2011, but deal activity dropped by 20 percent compared with the first half of 2011, according to KPMG International's latest Emerging Markets International Acquisition Tracker (EMIAT) study.

The semi-annual KPMG study, which tracks completed deals in which an acquirer took at least a 5 percent shareholding interest, revealed that in the second half of 2011, U.S.-based companies completed 126 emerging and high-growth market acquisitions, down from 158 in the first half of 2011.  Companies in the other European countries category made the second most acquisitions of emerging market companies with 81. 

In the second half of 2011, the most popular targets for U.S. companies were Central America and the Caribbean (25), India(22), Brazil (14), other South American countries (14), and China (12). 

"The drop in the number of U.S. acquisitions made in emerging markets is reflective of the global decline in deal volumes in the second half of 2011," said Mark Barnes, principal-in-charge of KPMG LLP's U.S. High-Growth Markets practice.  "U.S. corporate interest in emerging markets remains strong, but deals have decreased because of a lack of confidence in the global economy, rather than a lack of cash."

D2E Deals Decline Overall

According to the KPMG study, developed-to-emerging (D2E) deals decreased overall to 705 in the second half of 2011 versus 755 registered in the previous six-month period.  Following the United States (126) and the other European countries category (81), the most deals in emerging market economies were made by Singapore (75) and the United Kingdom (70).

The most popular emerging market targets for developed countries included South and East Asia (126), China (94), and Central and Eastern Europe (88).

U.S. Companies Remain Most Targeted by Emerging Market Countries

U.S. companies were the most popular investment targets for emerging and high-growth market companies with 45 acquisitions made in the country, almost doubling the number of deals made in the United Kingdom (25), the second most-targeted country.  South and East Asia (9), India (9), and Central America and the Caribbean (8) accounted for the majority of acquisitions made inthe United States in the second half of 2011. 

The United States also was the most targeted country in the first half of 2011 with 47 acquisitions made by emerging and high-growth market companies.

Overall, emerging and high-growth market companies made 201 acquisitions in developed economies in the second half of 2011, down slightly from 214 during the first half of 2011, according to the KPMG study.  South and East Asia and India were the top acquirers in emerging-to-developed deals (E2D) with 37 acquisitions each in the second half of 2011, followed by China(32).

"The big story used to be how much capital was flowing into emerging market countries," said Dan Tiemann, KPMG's global lead partner for Transactions Services.  "The story has reversed, and it's now how much capital has been flowing out, especially represented by some of the acquisitions they've been making in developed economies."

E2E Deals Continue to Fall

In the second half of 2011, there were 121 total emerging-to-emerging (E2E) deals, down from 152 in the previous six-month period.  The Commonwealth of Independent States (CIS) was the most popular target, registering 22 inbound deals, according to the KPMG study.  Russia was the leading emerging market acquirer in other emerging markets with 31 deals. 

KPMG's Barnes noted, "Emerging economies are continuing to grow at a faster pace than developed economies, so in the future we might expect deal volumes to be driven by cash-rich emerging market corporates and companies from developed countries seeking growth opportunities. Confidence has been holding both sides back, but competitive pressures are increasing, which may lead to higher deal flow."