Cross-Border Mergers Show Rising Trend as Global Economy Expands

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There has been a noticeable pick-up in cross-border mergers and acquisitions in recent months that could signal the beginning of a sustained rise in international takeovers, bankers and analysts say.

In October alone, there were six major M&A transactions in which a company in one country acquired the assets and operations of a company in a different country.

The reasons for these cross-border takeovers vary, but their increasing numbers suggest that conditions are ripe for a wave of such deals as global competitive pressures intensify.

Much of the increased cross-border M&A activity this year has involved companies from the US and Europe, but such deals are also becoming more common in developing countries, which are beginning to liberalize their trade and investment markets.

European companies have dipped into the US market to make acquisitions 239 times in the first nine months of 2004, buying up companies with a total value of $14 billion, according to Thomson Financial Securities Data. In the same period of 2003, European companies announced 213 such deals valued at $8.3 billion.

With the euro rising to record highs against the dollar, European companies have enjoyed a steep increase in their buying power in the US. Thus, it is not surprising, analysts say, that European companies are discovering attractive US acquisition targets.

What is surprising, however, is the even-bigger rise in the number of US companies buying up European companies in the first three quarters of 2004, despite the weaker dollar and the slower-growing economies in Europe compared to the US.

There were 526 US-based company acquisitions of European companies announced between January 1, 2004, and September 30, 2004, according to Thomson Financial. That was up from 472 such deals in the same period of 2003.

The aggregate value of the US-based purchases of European companies in the first nine months of this year was $44.9 billion, almost $11 billion more than in the first three quarters of last year.

"The level of cross-border acquisitions doesn't seem to be related at all to the level of various currencies," says Richard Peterson, chief market strategist at Thomson Financial in New York.

The number and value of international transactions doesn't rise or fall depending on whether the dollar is weak or strong, Peterson says.

Companies usually pursue cross-border acquisitions for strategic and competitive reasons. Such transactions often are horizontal M&As between competing firms in the same industry.

In the past 25 years, there have been two major waves of surging cross-border M&A transactions. The first wave was in the late 1980s, and the second big cross-border buying spree was in the latter half of the 1990s. During both of these periods, the global economy experienced relatively high economic growth and there was widespread industrial restructuring, according to the United Nations Conference on Trade and Development.

Cross-border M&A trends closely follow developments in total worldwide M&A activity. The share of cross-border deals has remained remarkably steady at about one-quarter of the total. In the first nine months of 2004, cross-border deals accounted for 26.3% of all M&A deals completed worldwide.

"A pick-up in the global economy is the main reason for this year's rebound in cross-border M&A," says Karl P. Sauvant, director of Unctad's investment division in Geneva.

"Such transactions are playing an increasingly important role 111 the growth of international production," he says.

The value of cross-border M&A has been the key driver of foreign direct investment flows since the late 1980s.

"World FDI flows have seen a dramatic shift toward the services sector-that's where the action is," Sauvant says.

While FDI in the services sector has traditionally been concentrated in trade and finance, there has been dynamic growth since 1990 in such investment in electricity, telecommunications, water services and other business services, he says. …