International mergers and acquisitions (M&A) are set to fall sharply in 2012, new OECD data showed on Thursday, amid fears over the euro zone debt crisis, slowing growth in China, and concerns that the United States is heading for a "fiscal cliff" of expiring tax cuts and automatic spending cuts which could result in a recession.
According to a new report the organization, international M&A activity is set to fall by 34 percent this year from 2011 to $675 billion, due to uncertainty over the global economyand fears of rising protectionism, which could create a riskier investment environment.
As a result of this decline in M&A activity, firms have also been increasingly divesting international assets. This has allowed for M&A activity to fall to its lowest level since 2004, the report said.
“Not only do firms reduce their international investments, they also become more prone to divesting themselves of international assets,” the report writes.
International M&A by European companies is expected to fall most sharply, by 48 percent, followed by activity in Africa and the Middle East, down 38 percent, and North America and Asia, decreasing by 26 percent, according to the OECD.
International M&A by Latin American companies is set to increase by 130 percent on the back of big intra-regional deals in airlines, steel, telecommunications, and retail, the report showed.
International M&A by state-owned enterprises (SOEs) has increased significantly in recent years as cash-rich firms have taken advantage of low prices and strategic long-term investment by SOEs.
Activity by SOEs nearly tripled in 2008 and 2009, from $51 billion in 2007 to $139 billion in 2009, and international M&A by government-owned entities, mainly from China, is set to climb above 10 percent of the global total.