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Uncertainty saps appetite for takeovers

By SAPA

Pan Pylas London

The value of merger and acquisition (M&A) deals around the world this year was nearly half the amount made five years ago, when the financial crisis first bared its teeth, a leading accounting and consulting firm said yesterday.

Despite big deals such as Rosneft’s takeover of fellow Russian oil company TNK-BP for a projected $54.5 billion (R473bn), and Glencore International’s $33bn merger with mining firm Xstrata, Ernst & Young is forecasting that the value of global M&A deals was 47 percent lower in 2012 at $2.25 trillion, against 2007’s $4.3 trillion.

The accountancy group noted a shift in activity from developed economies to high-growth ones in Asia and Latin America, as the value of deals in the US halved while those in China doubled.

There were a little under 37 000 deals worldwide, about 9 000 fewer than in 2007, when many companies took part in a feverish bout of deal-making, many of which proved to be too costly for the firms to bear.

Much of the blame for Royal Bank of Scotland’s near-collapse in 2008, which eventually required a government bailout, was attributed to its over-priced purchase of a large chunk of Dutch bank ABN Amro the year before.

The excess of corporate deals in 2007 contributed to a near freezing of credit markets that year and paved the way for the global banking crisis in 2008 and the subsequent global recession.

Ernst & Young said this year’s slump in corporate activity was mainly due to the uncertainty created by the debt crisis afflicting members of the euro zone, as well as fears over the impending “fiscal cliff” of automatic spending cuts and tax increases in the US.

“Acute caution was the prevailing M&A sentiment in 2012,” said Pip McCrostie, the global head of Ernst & Young’s M&A division.

“The euro zone crisis continues to impact nine global companies in every 10 and in 2012 we saw its impact reduce the appetite for M&A, even in many formerly deal-hungry emerging markets. Limited deal activity will likely continue through 2013, especially if we don’t see a clear, long-term resolution to the fiscal cliff.”

While the euro zone has suffered, the fast-growing economies of Brazil, Russia, India and China (Bric) are filling the gap. They accounted for 15 percent of the global M&A market in 2012, more than double 2007’s share of just 7 percent.

Even if the rapid growth of the Bric countries over the previous few years has not been fully sustained in 2012, the global M&A landscape has transformed over the past five years. Since 2007, the value of China’s M&A market has doubled, while that of the US has halved, Ernst & Young found.

Ernst & Young says China will be the preferred investment destination in 2013. The US, India, Brazil and Germany complete the top five. – Sapa-AP

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