International Mergers and Acquisition (M&A) investment is expected to reach around $670 billion by the end of the year, an increase of six percent over 2009.
This would be the first increase in international M&A activity since 2007, following declines of 21 percent in 2008 and 53 percent in 2009.
This was disclosed in a report by the Organisation of Economic Corporation and Development (OECD) investment committee, which also noted that international investment remained flat well into the fourth quarter of 2010, “confirming the end of two years of steep declines in 2008 and 2009 but also signalling that investment globalisation is in a holding pattern.”
Also noted is the relationship between Foreign Direct Investment (FDI) and M&A where three components of FDI are equity, reinvested earnings, and inter-company loans.
“International mergers and acquisitions are one type of equity FDI. On average, two-thirds of FDI has taken the form of international M&A investment since 2000. International M&A investment is an important sub-component of FDI because these investments result in full control. Equity FDI is a broader measure of international investment than M&A because it includes smaller cross-border equity investments (as low as 10percent) and Greenfield investments,” the report stated.
On the basis of the international M&A investment trend and the fact that a large share of FDI is M&A, global FDI flows are projected to decline by around eight percent in 2010. This decline would, nonetheless, represent an improvement over previous years. FDI flows declined by 19 percent in 2008 and 43 percent in 2009. This projection is consistent with quarterly FDI data available for the first half of 2010 for the OECD countries.
Investors from emerging economies such as China prefer to invest in other emerging economies. The G20 is the source of three-quarters of the world’s international M&A investment- around $417 billion through mid-November 2010. Just over a quarter of this, $106 billion went to emerging economies. During the past decade, emerging economies have become increasingly important sources of international M&A investment, increasing their share of the global supply of international investment from 1percent in 2001 to around 20 percent today.
“This rise of emerging economies as sources of international investment has resulted in more international investment for emerging countries. The reason for this is that a much larger share of investment from emerging economies goes to other emerging economies than is the case for investment from OECD countries,” the report stated.
In 2010, over 50 percent, or $31 billion, of emerging economies outward M&A investment was directed at other emerging economies. Just over 20 percent, or $75 billion, of OECD outward M&A investment went to emerging economies, the report added.
While investment from emerging economies was lower in absolute terms than from OECD countries, the report said relative tendency of the former to favour other emerging economies as targets could have important development benefits if the emerging economies continued to grow as sources of international investment, the report further stated.