Canada: The Global M&A Landscape

Last Updated: October 16 2012
Article by Crowe Soberman LLP

Worldwide

The decline in global M&A values paused in the second quarter of calendar year 2012, with an increase of 13.9% over Q1/2012. This reversed five consecutive quarters of falls in global M&A totals, according to mergermarket's M&A Round-up for the first half of 2012.

However, the overall M&A picture remains uncertain. The value of deals done in the first half of 2012 was a near 22% decline on the same period in 2011. On current form, full-year 2012 is set to post the second lowest yearly total for M&A activity since 2004.

Asia-Pacific

Introduction

Despite recent instability in financial markets, there are some signs of optimism regarding M&A activity in 2012. According to Bloomberg's 2012 Asia Pacific M&A Outlook, 70% of respondents expect an increase in M&A deal count over the course of this year compared to 2011. But investors see slow economic growth and ongoing market volatility as the most significant obstacles to closing M&A deals in 2012. Further, survey respondents expect deal premiums to rise during 2012 compared to the previous year.

Distressed companies are seen as the most frequent M&A targets, followed by public mid-cap companies and corporate divestitures. There are also expectations that the number of management buyouts will increase. So far this year, the most popular deal types are company takeovers and private equity deals. Survey respondents believe the latter will increase in importance during the second half of this year.

The Global M&A Landscape

In addition, the survey found that Japan and China continue to be the most frequent acquirers and targets for the Asia-Pacific region. For calendar year 2011, Japan was the most acquisitive by volume with US$160 billion in deal volumes in the region, while China came in second with US$126 billion worth of deals in the region. However, China outpaced Japan in terms of frequency with 2,275 regional deals compared to Japan's 1,811 deals.

China

The European debt crisis, and its subsequent drag on global growth, has only had a limited impact on China. This is because the Chinese economy is principally driven by internal demand, and the country's M&A market has remained highly active despite the global slowdown.

According to the Bloomberg survey, Chinese firms announced US$157 billion worth of global M&A transactions in calendar year 2011 – a 7.3% fall from 2010. Average deal values dropped to US$72.58 million in calendar year 2011 compared with US$77.86 million the year prior.

Deals in the region were dominated by oil companies. The largest transaction involved the acquisition of Petrogal Brasil Ltd by China Petroleum & Chemical Corp for US$4.8 billion.

The mining and energy sector is China's highest value M&A market, followed by the banking and finance and manufacturing sectors. However, according to the ChinaVenture Investment Consulting Group, the largest number of deals took place in the manufacturing sector.

Investors have high expectations for M&A activity in China in the second half of 2012. ChinaVenture Investment Consulting Group predicts that the poor performance of China's stock markets and the slowing down of its IPO market are expected to favor buyout investments and lift the number of M&A deals.

Further, the strength of China's currency will make foreign investments very attractive. Chinese enterprises are seeking investment opportunities overseas in the energy and manufacturing sectors, particularly among debt-laden companies.

Australia

Australia has experienced a challenging period for M&A activity in the first half of 2012. According to mergermarket, Australia recorded the largest year-on-year decline during this period of any country in the Asia-Pacific region. Impacted by falling commodity prices, the value of M&A deals totalled US$23.2 billion in the first half of this year – a 22% drop from the same period in the prior year. The number of deals decreased 30% to 305, according to Capital IQ.

The resources and energy sector continues to dominate Australian M&A activity, accounting for nearly 50% of the total number of transactions according to a study conducted by Clayton Utz. Prominent deals conducted over the first six months of 2012 include:

  • Yancoal Australia's (whose majority shareholder is China's Yanzhou Coal Mining Company Ltd) US$8.4 billion acquisition of Gloucester Coal
  • Whitehaven Coal's takeover of Aston Resources (US$2.4 billion) and Boardwalk Resources ($US738 million)
  • Exxaro's takeover of African Iron (US$280 million)
  • St Barbara's proposed acquisition of Allied Gold (US$633 million)
  • Sumitomo's acquisition of a 50% interest in Isaac Plains operations from Aquila Resources Ltd (US$454 million).

Foreign investment remains the biggest driver of Australian M&A activity, accounting for 73% of announced deals in the first half of this year according to Clayton Utz. This investment is driven largely by Australia's natural resources, as well as its standing as a stable economy with a transparent regulatory environment.

Key foreign investors into Australia include China, with its investment in resources (for example, Yancoal's acquisition of Gloucester) and agriculture (including COFCO Group's takeover of Tully Sugar). India is also involved in M&A activity in Australia, with resources acquisitions by GVK, Adani and Lanco, largely driven by India's need for resources and energy sources – including thermal coal.

Given the current volatility in equity markets, and an increase in foreign bidders, cash deals have represented close to 82% of all Australian M&A transactions in the first half of 2012, according to Bloomberg.

Australia continues to experience a two-speed economy, where the mining and energy sectors are thriving, while the manufacturing and retail sectors struggle and experience significant foreign competitive pressures. Corporate boards remain highly cautious at present and matching the price expectations of buyers and sellers will prove difficult in the current environment.

Japan

Over the first half of 2012, Japanese companies completed 912 M&A deals worth US$71.6 billion (¥5,622 billion), according to Recof. Underpinning this M&A activity was the Japanese Government's decision to inject US$12.74 billion (¥1,000 billion) into the Tokyo Electric Power Company, in response to the Fukushima nuclear disaster.

At the same time, the number of crossborder M&A deals between Japanese and international firms reached its highest level in 22 years over the first half of 2012. According to Recof, 262 deals were completed worth US$44.45 billion (¥3,490 billion). This M&A activity has been focused around the food and energy sectors.

Since the Fukushima disaster, Japanese companies have increasingly sought out opportunities in overseas markets, anxious about the possibility of local electricity supply shortages. For that reason, large companies and small to medium enterprises now actively participate in global M&A deals, which has helped boost the number of deals being undertaken.

Some analysts have forecast that Europe's unstable financial situation will lead to an ongoing appreciation of the Japanese Yen this year. A higher currency will push up the price of exports, and will hinder an export-led recovery.

According to economists, population increases and economic growth in emerging markets will ensure global M&A transactions involving Japanese companies continue to grow into the future.

Middle East, Africa and India

Introduction

M&A activity in the Middle East and Africa went up in the first two quarters of 2012 based on deal value, according to mergermarket's M&A Round-up. However, when compared to the same period in 2011, overall M&A activity in the first half of 2012 was down by US$22.1 billion, a 16% drop.

The telecommunications and financial services sectors recorded increases in both deal numbers and values in the first half of 2012.The largest deal completed in this period was France Telecom SA's US$3.3 billion acquisition of a 63.64% stake in the Egyptian Co. for Mobile Services.

Turning to India, the domestic M&A sector remained robust over the first six months of 2012. This was despite a drop in overall M&A activity. In addition, ongoing legal and regulatory uncertainty may lead some companies to reconsider or delay M&A plans.

Turkey

The Turkish economy has been one of the world's fastest growing in recent years. Shrugging off the effects of the global financial crisis, the country has mounted a strong recovery, with gross domestic product increasing by 8.5% in 2011. Turkey is now viewed as an emerging market and an increasingly attractive investment destination.

At present, Turkey is in the middle of a major privatization program, involving infrastructure and power projects, in addition to the national lottery. And the increasing power needs of the economy are expected to underpin an increase in M&A deals in coming years.

In the first half of 2012, major M&A activity focused on the financial services, energy and manufacturing sectors. These deals involved a mix of local enterprises and companies from Russia, France and the United Kingdom.

However, the nation's economy does face a number of headwinds. These include the current account deficit, exchange rate risk and the fallout from the ongoing debt crisis in Europe.

In a developing trend, Turkish companies have increasingly pursued M&A deals with their German counterparts – and vice versa. During the first six months of 2012, six M&A deals have been completed between companies from these countries – with five of the deals involving target companies in Turkey.

Based on published deal values, the largest deal announced over this period was the acquisition of Turkey-based distributor of imaging, graphic and medical products, Filmat Dis Ticaret A.S. by Fujifilm Europe GmbH for €21 million.

In 2011, 11 deals were completed between companies from these countries, up from seven in 2010. German investors were involved in six completed deals with target Turkish companies in 2011, compared with three a year earlier. Turkish investors completed five deals with target German companies in 2011, a slight increase over the four completed in the previous year.

While only a few deal values were announced, based on published deal values, approximately €26 million was invested in deals between German and Turkish companies in 2011 – less than half the total in 2010.

However, the deal values disclosed in 2010 were influenced by a major media transaction. Germany's Stroeer Out of Home Media AG, one the world's biggest outdoor media companies, paid €55 million to increase its stake in Turkey's Stroeer Kentvizyon Reklam Pazarlama A.S. to 90% from 50%.

In 2011, the largest disclosed transaction was Germany's Doehler GmbH paying €22 million to purchase 100% of the shares in Aroma Karaman Konsantre Tesisleri in Turkey. The shares were sold by Aroma Bursa Meyve Sulari ve Gida A.S.

We expect the number of deals between German and Turkish companies to increase in 2012, underpinned by robust economic conditions in Turkey. With stable economic growth, investment-friendly legislation and structural economic incentives for companies, Turkey is a nation of growing economic importance. Further, the country has a workforce of over 25 million people, and acts a strategic hub and important bridge between Europe and Asia, offering a cost-effective logistics hub for companies.

India

Indian M&A activity in the first half of 2012 was dominated by domestic deals, which accounted for 86% of all deals completed. Overall, the value of transactions finalised over this period is estimated at US$18.1 billion – around 35% lower than the corresponding period for 2011. The drop in activity levels was particularly sharp in Q2/2012, with the value of deals done plummeting by 57.2% compared to Q2/2011, to US$5.4 billion. The value of transactions undertaken in Q1/2012 was estimated at US$12.7 billion according to the Reuters and Dealogic reports.

Despite these figures, we have seen strong activity in the domestic M&A sector. The value of domestic deals done in the first half of 2012 is estimated at US$7 billion. The merger and restructuring of Sesa Goa, Vedanta Resources, Sterlite Industries, Cairn India and Madras Aluminium, with a valuation of US$4.1 billion was the single largest deal over the first half of 2012.

Domestic sector transactions were focused around the financial and telecommunications sectors, health care, media and entertainment, technology, and real estate and hotels. As a whole, the domestic sector is seeking access to cheaper capital, with several companies feeling the combined stress of rising operating and interest costs, and lower demand. This environment presents opportunities for companies that have conserved their cash holdings. These opportunities will arise across a variety of sectors, including manufacturing, health care and pharmaceuticals, services and retail, real estate, finance, aviation and IT.

At present, India's M&A market is being affected by uncertainty over the taxation environment and exchange rate movements. This has led companies to take a 'wait and watch' attitude towards deals, or abandon them altogether.

There had been optimism in the market following the Indian Supreme Court's ruling in the landmark Vodafone tax case. This decision was expected to support deal-making in a market that needs more sources of external funding. However, the Indian Government's ill-advised move to retrospectively amend the law and tax the capital gains earned by Vodafone and other companies caused a severe backlash and curbed the optimistic sentiment.

Without getting into the merits of seeking to tax such gains – some other countries are doing so – it is the retrospective nature of the amendment that has hurt sentiment. Businesses have enough uncertainty to deal with and no one wants to worry about amendments that change the rules after the game has been played.

Further, the proposed introduction of General Anti-Avoidance Rules (GAAR) was viewed as causing additional challenges for foreign investors and foreign institutional investor (FII) transactions. FIIs feared there would be insufficient time to plan investment and exit strategies. However, this fear was partially allayed by the Indian Government's postponement of the matter, although the need for greater certainty will return once the GAAR panel makes it recommendations.

In other policy-level challenges, the Government has been unable to bring in foreign direct investment (FDI) in multi-brand retail and civil aviation, sectors that were expected to generate strong inbound investment interest. In addition, pricing and regulatory uncertainties linked to the telecommunications sector – previously an area of strong investment interest – caused a drag on sentiment. The depreciation of the rupee continued to create risk fears in the minds of foreign investors, many of whom saw a dilution of their dollarbased gains.

On the other hand, some recent Government decisions have been positive:

  • Indian retail brands can now secure FDI without government approval, so long as ownership of the brands remains with companies that are locally owned and controlled. This is expected to lead to greater private equity investment interest in Indian brands
  • regulations for external commercial borrowings have been frequently eased
  • FDI by Pakistan nationals and Pakistan-based entities is now permitted, except in some specified sectors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Crowe Soberman LLP
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions