Global challengers—high-growth companies that are from emerging markets and are rapidly expanding overseas—have changed their deal-making strategies in recent years. The number of overseas deals completed by the 2013 challengers fell from 130 in 2007 to 99 in 2011, but the average deal size increased from $484 million in 2007 to nearly $1.1 billion for deals announced in 2012. (See Exhibit 1.)
The history of M&A by the 2013 BCG global challengers has three chapters—the two years prior to the September 2008 onset of the financial crisis, the two years during the crisis, and the two subsequent years of turmoil. Companies within the same industries and countries have tended to respond in similar ways to the global economic climate. We describe their movements as expanding in the turmoil, integrating after the crisis, and returning home. (See Exhibit 2.)
Expanding in the Turmoil. Services companies seized the global financial crisis as an opportunity to build their overseas presence. They increased the total value of their cross-border M&A by 107 percent from 2006 through 2008 and from 2010 to 2012 while reducing the value of domestic deals by 76 percent.
During that time, VimpelCom became the sixth-largest global telecom company largely through acquisition. Its $6 billion deal to buy Wind Telecom, including a 52 percent stake in Orascom Telecom Holding, added 123 million mobile subscribers.
Global challengers from China also increased their overseas M&A activity during the financial crisis. The value of their outward-bound M&A deals rose from $7 billion in the two years prior to the crisis to $30 billion in the two following years, before settling at $23 billion in the last two years. Sany Group’s acquisition of Putzmeister is emblematic of this trend.
Integrating After the Crisis. Many challengers, notably consumer goods and Brazilian companies, increased their outbound M&A activity during the financial crisis and are now digesting those deals. The value of outbound deals by Brazilian deals went from $5 billion before the crisis, to $9 billion during the crisis and immediately afterward, and $2 billion in the most recent period. Godrej Consumer Products has not made any sizeable deals since its acquisition of Indonesia’s Megasari Makmur, its largest ever, in May 2010.
Returning Home. Some challengers, especially commodity players and Indian companies, were active before the global financial crisis but have pulled back. Commodity companies, especially from Russia, reduced their cross-border deal value by 43 percent between the 2006–2008 pre-crisis periods and the most recent 2010–2012 period. Instead, many of them are doing domestic deals. At the end of 2012, United Company Rusal moved to acquire several Russian aluminum companies.
The value of outbound deals by Indian challengers has declined from $26 billion in the first two-year period to $3 billion in the third two-year period. They are seeking to augment their capabilities by integrating a series of smaller domestic acquisitions. (See “The Allure of Home.”)
Examining the six years altogether, commodities challengers still completed the largest number of cross-borders deals: they closed 34 percent of all deals completed by challengers even though they represent only 20 percent of this group.