FDI-linked cross-border mergers and acquisitions reached US$ 720 billion in 1999
New statistics on cross-border mergers and acquisitions (M&As) compiled by UNCTAD show that M&As resulting in the acquisition of more than 10 per cent of the equity of foreign firms grew by 35 per cent in 1999, to reach US$720 billion on a completed transaction basis. These statistics are new compared to other available cross-border M&A statistics, in that they correspond more closely to the commonly accepted definition of foreign direct investment (FDI) as far as the equity threshold is concerned (i.e. acquisition of more than 10 per cent equity, thus excluding portfolio cross-border acquisitions), and that the values are for completed M&As only(1). The new UNCTAD statistics on cross-border M&As, however, do include M&As financed by funds that are raised in local and international financial markets; nor is the value measured on a net basis as in the balance-of-payments concept underlying the measurement of FDI(2). For these reasons, the value of cross-border M&As cannot be calculated as a percentage of total FDI flows.
Still, cross-border M&As are a driving force behind recent growth of FDI flows, which reached an estimated US$ 827 billion in 1999 (TAD/INF/2837). Foreign investment through M&As has been increasingly regarded by TNCs as a strategy to enhance the core competence of their corporate systems. Therefore, FDI flows and cross-border M&As have followed a parallel path in recent years (figure 1).
Western European firms expanded their cross-border M&A activity the most in 1999, both in terms of sales and purchases (table 1). The United States was the single country with the largest value of sales. The United Kingdom became the largest acquirer in 1999, replacing the United States. These respective positions translated into the two countries´ respective FDI flow positions as well (TAD/INF/2837). The value of acquisitions of Japanese firms by foreign ones has been already higher than that of foreign firms by Japanese ones every year since 1997, although in the overall FDI picture, inward FDI to Japan has never been higher than that country´s outward FDI.
In developing countries, cross-border M&A sales fell in 1999 (table 1). This decline was largely caused by fewer privatizations in Latin America where the value of cross-border M&As fell from US$ 64 billion in 1998 to US$ 37 billion in 1999. In developing Asia, cross-border M&As continued to grow in 1999. In particular, cross-border M&As in the five Asian countries most affected by the financial crisis were still on the rise, growing in value from US$11 billion in 1998 to US$15 billion in 1999. The value of cross-border M&A sales in Central and Eastern Europe doubled between 1998 and 1999 from US$ 5 billion to US$ 10 billion. This high growth is explained by privatization programmes.
The issue of cross-border M&As has raised significant concerns in both developed and developing countries, particularly as regards their impact on competition and employment.
Given the importance of cross-border M&As, the World Investment Report 2000, due to be published in September, will feature an examination of these transactions and their effects on development.
