A study of cross border acquisitions by emerging market multintionals

Abstract

Over the past couple of decades, cross-border mergers and acquisition (CBM&A) activities by emerging economy multinational companies (EMNCs) have increased tremendously, in line with the growth in these countries. Though acquisitions by corporates from developed economies still forms the majority of such activity, the share of EMNCs in the total cross-border acquisitions has been increasing significantly. India, China, Brazil, South Africa and Russia are the forerunners in this respect. Between 1990 and 2003, the average share of CBM&A purchases as a percentage of FDI outflows of developing countries reached 40%. For instance, FDI outflows for China in 2008 amounted to USD 52 billion. Of this almost 80% was through M&A activity. According to an AT Kearney report analysing the period from 2002 to 2007, the annual rate of growth of CBM&A activity for emerging economies was pegged at a whopping 26%, compared to a modest 6% globally. A noteworthy trend here is that many of these acquisitions by EMNCs have been in the developed countries. Some of the most prominent examples of the same include: - Brazilian firm Copanhia Vale do Rio Doce’s acquisition of Inco (Canadian concern). - Acquisition of Rinker group (Australian firm) by Cemex SA de CV (Mexican firm). - India’s Tata Group’s acquisition of British major Corus Group. - Saudi Basic Industries Corp.’s (Saudi Arabia) acquisition of GE Plastic (US).

Specifically in India too, a significant number of deals have come through, though not as much as some other emerging economies. South Africa, Mexico and Malaysia form the bulk of CBM&A in developing countries.