São Paulo – The United Nations Conference on Trade and Development (Unctad) reported this Tuesday (17th) that international mergers and acquisitions in the first half (H1) of 2015 reached USD 441 billion, up 136% from a year ago. The number is the highest since H2 2007. M&As between corporations in different countries are a modality of foreign direct investment (FDI).<\/p>\n
As per the Global Investment Trends Monitor<\/em>, multinational corporations involved in M&As took advantage of record-high working capital and “outstanding” international liquidity conditions. <\/p>\n M&A flows were driven up primarily by transactions involving companies in developed countries. A highlight was M&As undertaken by European companies, which amounted to USD 179 billion in investments, as against USD 46 billion in divestments in H1 2014. <\/p>\n As a result of the Eurozone sovereign debt crisis, local companies spent years offloading a considerable number of assets, according to Unctad, and the trend has now reversed. <\/p>\n Operations carried out by United States companies doubled in size in H1 2015 from H1 2014, to USD 88 billion. <\/p>\n The increment is due to the US dollar’s appreciation relative to other currencies – which makes non-US assets cheaper for North Americans –, as well as to multinational corporations’ high levels of working capital, and the low cost of financing.<\/p>\n In this case, however, there is a caveat: some 50% of M&A values concerned “tax inversion” or “corporate inversion” operations, such as when a US-based company buys off another abroad and the latter becomes the new headquarters of the resulting conglomerate, in a bid to minimize exposure to the US tax system. Unctad warns that new US Department of the Treasury rules led to the cancelling of deals of this type that were carried out in 2014. <\/p>\n Canadian multinationals also contributed to overall M&A growth, with deals worth USD 57 billion, up 130% from H1 2014. It was the highest H1 M&A number ever for Canadian companies.<\/p>\n At the other end, mergers and acquisitions led by companies from developing countries and economies in transition (former Soviet bloc) declined 34% to USD 72 billion in the first half of the year.<\/p>\n Development nations in Asia, which were the main sources of this type of transactions in 2014, recorded the sharpest decline in H1 2015. In the case of Latin America and the Caribbean, there was a drop of 90% in the total of operations and a net disinvestment of USD 8.3 billion. Business of African companies and economies in transition such as Russia also declined.<\/p>\n In these cases, the performance was impacted by factors such as the devaluation of currencies in some of these countries, low prices of commodities in general and difficulties in obtaining credit in the international market.<\/p>\n Lower growth<\/strong><\/p>\n For Unctad, the increase in merger and acquisition operations tends to drop in the second semester, but the total value of 2015 should be much higher over 2014. The organization made the statement based in preliminary data from January to October.<\/p>\n These transactions should continue to grow in the next few years, even if in a slower pace. The UN’s agency states this because mergers and acquisitions are a way to guarantee an increase of revenues when a company has a low rate of organic growth (expansions, building of new plants, etc.). And the modest performance of the emerging countries should inhibit the organic growth of the companies, whereas the multinational companies continue with high volumes of working capital to go shopping. <\/p>\n One hurdle when it comes to this trend, however, is the high indebtedness levels across emerging markets, where debt rollover costs could be high due to rising interest rates. According to Unctad, this applies mostly to companies from countries whose currencies lost strength in 2015, such as Brazil.<\/p>\n *Translated by Gabriel Pomerancblum & Sérgio Kakitani<\/strong><\/p>\n