Emerging market buyers help sustain M&A boom

By Mathieu Robbins

LONDON (Reuters) - The arrival of money from emerging markets such as India, China and Russia is one of the new factors underpinning the current merger and acquisition boom, bankers said at the Reuters Investment Banking Summit.

As the volume of deals in 2006 looks on course to set a record, firms from the oil-rich Middle East are being joined by rivals from markets such as Russia, India and China looking to scoop up mature assets. The trend is set to continue.

"We will see a global rise onto the world stage of emerging markets (in M&A)," said Tom King, head of European investment banking at Citigroup (C.N: Quote, Profile, Research, Stock Buzz).

Emerging market companies have bid for foreign targets worth more than $181 billion so far in 2006, according to data from investment banking research firm Dealogic. That's higher than the $124 billion deal volumes they achieved in the whole of 2005.

India's Tata Steel (TISC.BO> and Russia's Severstal (CHMF.MM: Quote, Profile, Research, Stock Buzz) have all taken part in M&A activity in Europe this year. China's CNOOC (0883.HK: Quote, Profile, Research, Stock Buzz) has also tried to buy U.S. assets.

Tata last month agreed to buy British steelmaker Corus for 4.3 billion pounds ($8.1 billion).

"The Tata bid (for Corus) is a sign of a massive emerging market player having the corporate self-confidence to do it," Richard Murley, a managing director at investment bank Rothschild. "There will selectively be that in certain industries."

The entrance of such bidders is in the short term likely to be focused on specific assets, primarily natural resources such as energy and steel, said bankers.

Chinese offshore oil and gas producer CNOOC Ltd. is scooping up assets worldwide, despite having failed in its attempt to buy Unocal Corp. in the United States after lawmakers opposed the deal.

The company bought assets in 2006 including a $2.3 billion stake in a Nigerian oil field.

CITIC Group, a diversified Chinese-owned investment vehicle, last month announced the $1.9 billion purchase of a large Kazakh field.

"It's no longer just the usual suspects, for example 'what is the next healthcare merger between two mature European companies or between Europeans and North Americans'," said Viswas Raghavan, head of debt and equity capital markets for Europe and Asia at J.P. Morgan.

"We are at the inflexion point of the whole landscape opening up."

To be sure, the rise in volume of such deals is likely to be gradual as some countries maintain political barriers that block takeovers such as CNOOC's Unocal bid, while the number of emerging companies large enough to undertake such efforts is still small.

A lot of the deal-making in such countries will start as internal consolidation before the companies become large enough to expand outside, bankers said.

"We'll generally first see within-country plays" as companies bulk up domestically, said Citigroup's King. "Then they (emerging market companies) will try to extend their global footprints."