China, India Among Top 5 M&A Destinations

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Oct. 30 – This week, consulting firm Ernst & Young (EY) released its latest bi-annual mergers and acquisitions (M&A) report, which cited China as one of the world’s top five destinations for M&A activity alongside India, Brazil, the United States and Canada. The report also further provided an optimistic outlook for China and India, with the volume and size of deals expected to increase in the upcoming year.

Of the companies surveyed, 35 percent said they were likely to pursue acquisitions in the coming year (compared to only 25 percent last year). Specifically, the life sciences, energy, automotive and consumer products industries are expected to experience the most deal activity.

In addition, according to the EY report, 65 percent of executives expect the global economy to improve in the upcoming year – up from last year’s count of just 22 percent.

Pip McCrostie, Ernst & Young’s global M&A head, noted that “all of this is underpinned by growing confidence in a global economy on sounder footing – improving economic conditions in mature economies and more stabilization in the major emerging markets.”

The survey also discovered that companies are more likely to use debt and equity to finance deals, as opposed to cash. The report was conducted among 1,600 executives from large companies globally and across industry sectors.

China and Hong Kong

According to financial reporting company Mergermarket, the energy, mining and utilities sectors in China and Hong Kong were the most active sectors in the region thus far this year, with a total of 70 deals worth US$29.7 billion recorded. In addition, the consumer products sector saw a 617.3 percent increase in value from US$2.8 billion last year to US$20.4 billion throughout the first three quarters of 2013.

Inbound M&A into the Chinese life sciences sector – including medical and pharmaceutical companies – may be a result of encouraged investment by the Chinese government, which is good news as healthcare quality is relatively poor in China, a nation facing a rapidly growing elderly population.

India

Whilst India sits in the top 5 destinations for M&A activity, its M&A environment has been on a decline compared to last year, with total M&A activity throughout the first three quarters of 2013 amounting to just US$17 billion – a 44 percent year on year decline. The pharmaceutical, medical & biotech sector was the only sector to see a consecutive increase in value this year.

The decline in inbound M&A investments into India is likely to have been driven by concerns surrounding the outcome of next year’s general elections.

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