International rivals trump UK

You would expect that a schoolboy achieving a good mark in an exam paper
would be pleased, but if the rest of the class all scored higher, he would be
far less satisfied.

UK companies undertaking merger and acquisition activity in the mushrooming
markets of China, India and Russia are facing a similar situation.

The latest merger and acquisition figures released by the Office for National
Statistics revealed that, in 2005, 15% of all acquisitions made abroad by UK
groups were in these markets. This volume represented more than a third of all
international deal values, which had grown by 176% from £3.5bn to £9.8bn.

An impressive set of figures, it would seem, but when the activity of UK
groups is compared to their peers in Europe and the US, the figures are not
nearly as attractive.

Recent research by KPMG found that over the past five years, the US and
Europe’s top quoted companies had been five times more acquisitive in emerging
markets than their UK equivalents.

In 2005, the 226 FTSE Eurofirst companies closed 47 deals in Brazil, Russia,
India and China. Companies in the US’s Standard & Poor’s 500 completed 45
deals, while the FTSE100 constituents only closed three deals.

Ian Glanville, senior corporate finance adviser at KPMG, said the reason UK
companies trailed their international rivals was a cultural one, with UK groups
typically adopting a more conservative approach.

‘There are advantages to entering new markets as second-movers, but it seems
that UK companies have erred on the conservative side by opting for predictable,
stable near-shore deals,’ said Glanville.

‘It is fine to be a second mover into emerging markets, but you don’t want to
be a tail-end Charlie. UK companies need to start entering these markets or they
will miss out to European and US companies.’

The lagging UK activity in emerging markets is not limited to the FTSE100.
The ONS statistics suggested mid-market companies were even less active in the
Far East, Eastern Europe and South America than their heavyweight counterparts.

The £9.8bn used for emerging market deals last year was spent on just 50
transactions. The low volumes indicate that it was the bigger listed companies
making the acquisitions rather than the mid-market.

David Brooks, head of M&A at Grant Thornton, was more upbeat on the
latest deal numbers and the activity of UK corporates in developing markets.
Brooks said the increased deal value in 2005 showed that British companies were
showing an increased appetite for emerging markets.

‘UK companies are more prepared to invest substantial amounts in countries
than in the past in order to fulfil their strategic objectives and to chase
bigger returns,’ he said.

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