Global M&As plummet in 2009, Emerging markets and Central Europe faring relatively well

Global M&As plummeted in 2009 to $1.6 trillion (according to Mergermarket data) of which a little less than half in North America (45%) and the remaining split between Europe, where M&A activity nosedived, and Asia and the rest of the world that are increasingly making their mark in the global investment arena.  I’ll be posting more on this in the future.  In the meantime I’ll be highlighting the opportunities that this data suggest for emerging markets.  These opportunities have being around for some time; it’s just only now in my opinion that they’re more emphatically substantiated with figures.  Apart from economical growth, opportunities in these markets may be supported from decreasing number of large private equity transactions in developed markets (due to limited past success and unavailability of leveraged financing) and crowding out of new capital raising from government debt issues. 

Based on recent research that I presented at the 10th NYU Global Business Conference, Central Eastern Europe, the emerging part of Europe, appears to be recovering from the global crisis.  After a shock caused by the credit crunch early in the financial crisis, investor confidence seems to be returning.  Probably this shock was good after all, as capital poured in too far too fast and valuations have gone out of hand (but as Jim Chanos would say, “bubbles are created by credit excesses not valuations”).  As you may see in the attached graph, GDP per capital across CEE is one third of the EU average; the convergence can’t happen overnight as pre-crisis valuations implied.  However opportunities remain there for the knowledgeable investor.  After all we’re talking about an area of 180 million people, growing GDP, EU backing, skilled, relatively low labor cost and contrary to the PIIGS, descent fiscal condition.  However, capacity and infrastructure limitations should be taken into consideration, as well as local sensitivities and practices. 

Regarding industry sectors I would see opportunities in:

–       Energy (GDP growth/investment in efficiency and renewables)

–       Financials (increase in consumer lending)

–       Telecoms (new technologies, DSL)

–       Consumer (rise of middle class)

–       Outsourcing (good workforce, European time zone and proximity)

–       Manufacturing (in the context of global facility diversification)

–       Logistics (central location)

–       Health (population aging)

–       Leisure & Tourism (upgrade of services and facilities)

The NYU conference also covered opportunities in Asia as well as Africa which I see gaining increased attention.  Overall opportunities exist everywhere and an informed global investor should analyze each one in the local context but without missing the global perspective and ignoring good old investment analysis as better opportunities might exist elsewhere and investment analysis is the tool to figure this out.  Act local; think global to remember the old marketing fad.


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