September 13, 2012 / 3:20 PM / 5 years ago

OECD sees international M&A dropping 34 pct in 2012

LONDON, Sept 13 (Reuters) - Global economic uncertainty is likely to lead to a plunge in international mergers and acquisitions this year, the Organisation or Economic Cooperation and Development said on Thursday.

The Paris-based forum of industrial democracies projected that cross-border M&A would drop to $675 billion, a 34 percent decline from $1 trillion in 2011.

Nearly all regions are being affected by the pullback, which the OECD attributed to doubts about the future of the euro, slowing growth in China and the looming U.S. ‘fiscal cliff’.

Latin America is set to buck the trend, with international investment forecast to jump 130 percent on the back of big intra-regional deals in the retail sector, airlines, steel and telecommunications, the OECD said.

It said companies were also increasingly selling overseas assets. As a result, net international M&A, which subtracts cross-border divestment from the headline total, has fallen this year to the lowest level since 2004.

Another finding from the OECD’s survey is that cross-border M&A is falling three times faster than domestic M&A as companies shelter at home from the storms buffeting the global economy.

“This is consistent with our general understanding of international investment by firms as being inherently more risky than their domestic operations,” said OECD economist Michael Gestrin.

As well as the scope for market turmoil if the euro begins to split, rising protectionism might explain why cross-border M&A is falling much faster than domestic investment, the OECD said.

Not surprisingly, cross-border investment is tied to the business cycle, making it very volatile.

It fell 21 percent in 2008 and another 51 percent in 2009 before rebounding by 20 percent in 2010 and 31 percent in 2011 as global growth staged a modest recovery, Gestrin said.

In 2012 Asia is likely to suffer the biggest drop in inbound M&A, down 48 percent, followed by North America (-39 percent), Europe (-29 percent) and Latin America (-22 percent).

In an exception to the trend, Africa and the Middle East is on course to record a 67 percent rise in inbound M&A this year, reflecting interest in energy and minerals, according to the OECD.

Europe is also the region whose companies will rein back cross-border M&A most sharply in 2012 - by 48 percent, the OECD reckons. (Reporting by Alan Wheatle; Editing by Susan Fenton)

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