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News USA U.S. Companies Pull Back on M&A Activity in Emerging
According to KPMG International’s latest High Growth Markets Tracker study, U.S.-based companies decreased mergers and acquisitions (M&A) activity in emerging and high-growth markets in the second half of 2013 compared to the first half of the year. Developed-to- high-growth market (D2H) deal volumes are also declining.
The semi-annual KPMG International study, which tracks completed deals in which an acquirer took at least a five percent shareholding interest, found that U.S. companies completed 98 emerging
and high-growth market acquisitions in the second half of 2013, compared to 122 in the first half of 2013. Overall, D2H deal volume dropped 11 percent – from 575 in the first half of 2013 to 512 in the second half of 2013.
“With economic growth slowing and political unrest in some emerging markets, companies in developed markets are shying away from cross- border acquisition targets,” said Mark Barnes, national leader of KPMG’s U.S. High Growth Markets practice. “Although regions such as Central America and Europe present access to
new consumer populations, and additional growth opportunities exist in other fast-growing emerging markets, investors are playing it safe by staying on the sidelines for now to avoid the risks associated with expanding their organizations’ global footprint.”
Geographically, the most popular targets for U.S. companies in the second half of 2013 were: Central America and the Caribbean (17); Central and Eastern Europe (15); South American countries excluding Brazil (14); Brazil (13); India (12); China (8).
South and East Asia (81) and Central and Eastern Europe (79) were the most popular targets for D2H deals overall.
“Although domestic
confidence in North America and Western Europe has risen recently, we are not seeing that confidence reflected in the developed-to-high-growth deals market. Overall economic conditions have been improving, but given the fragility of the global marketplace, fluctuating stock prices, and increased interest rates to battle inflation in several emerging markets, acquirers in developed
IPO Activity Doubles Q1 2013 Figures
The robust market for initial public offerings (IPOs) continued in the first quarter of 2014, and momentum is expected to remain strong into the second quarter, according to IPO Watch, a quarterly survey of IPOs listed on U.S. stock exchanges by PwC US. IPO volume for the first quarter
of 2014, as of
March 31, reached 71 public company debuts, representing a 109 percent increase over the 34 public listings in the first quarter of 2013. In addition, IPO proceeds raised during the first quarter of 2014 reached $11 billion, a 41 percent increase over the $7.8 billion raised in the first quarter of 2013. The IPO market saw a spike in activity from mid-January through mid-February during which time 37 IPOs (52 percent of IPOs) were completed.
“The improving domestic economy, rising confidence among CEOs and continued record low interest rates all combined to fuel very strong activity in the U.S. capital markets during the first three months of the year,” said Henri Leveque, leader of PwC’s U.S. Capital Markets and Accounting Advisory Services. “Given the strength of
today’s
equities markets, investors are increasingly focused on pursuing growth stocks across multiple sectors, widening the runway for well-prepared companies with strong growth rationales to pursue IPOs.” On a sector basis, healthcare, in particular the biotechnology and biopharmaceutical
sectors, dominated the IPO market with 35 IPOs, representing close to half of first quarter 2014 IPO
volume. Healthcare IPOs, however, only raised a total of $2.2 billion (20 percent of total IPO
proceeds)
which illustrates that these IPOs typically raise smaller levels of investment due to the often developmental stage of biotechnology and biopharmaceutical IPOs. IPO volume in the consumer sector moderated during the first quarter, after a strong 2013.
The financial sector led the way in terms of total IPO value, accounting for more than $2.7 billion in IPO proceeds during the first quarter. This was mostly due to an outsized offering - Santander Consumer USA Holdings-- that raised $1.8 billion, representing the largest IPO of the first quarter and the only IPO to raise in excess of $1 billion. The energy sector also resonated with investors,
The high yield debt market continued to be driven mostly by refinancings, and remained active, although it was slightly down in volume and proceeds when compared to the first quarter 2013. A total of 146 issuances worth $74.9 billion were completed during the first quarter of this year, compared to 146 issuances worth $68.6 billion in the final quarter of 2013, and 176 issuances worth $90.4 billion in last year’s first quarter.
“In addition to the strong IPO market, we’re continuing to see significant refinancing activity, as management teams seek to sure-up balance sheets and build liquidity ahead of an anticipated increase
raising IPO proceeds of $2.3 billion via six offerings during the first quarter.
in interest rates,” said Neil Dhar, PwC’s U.S. Capital Markets Leader. “Both IPOs and high yield debt issuances remained attractive to investors as they continued their search for yield.”
One-day IPO returns continued to show strong performance, with an average 19 percent stock price increase on the first day of trading. Even though this is over a 58 percent increase from the one-day IPO returns experienced during the first quarter of 2013, it is still slightly less than the very strong one- day IPO returns shown during the fourth quarter of 2013.
Aftermarket returns
of IPOs also continued to outperform with first quarter 2014 IPOs generating on average 23 percent return over issue price as at quarter end, and again significantly
High-Growth-to-Developed (H2D) Deal Volumes Rise
Globally, H2D deal volume increased seven percent – from 177 acquisitions during the first half of 2013 to 190 in second half of 2013. U.S. companies remained the most popular targets for emerging and high-growth market companies with 36 acquisitions made in the United States in the second half of 2013, up from the 33 deals completed in the first half of 2013.
countries are deciding to hold back from pursuing cross-border M&A for now,” said Phil Isom, head of KPMG Corporate Finance LLC.