CHAPTER 3: WHAT IS DIFFERENT ABOUT GOVERNMENT-CONTROLLED
3.3. Determinants of Cross-Border Acquisition Activity Led by Government-
3.3.1. Measuring the Level of Cross-Border Acquisition Activity by Type of Acquirer
Our next goal is to measure whether the level of cross-border acquisition activity led by government-controlled acquirers differs from that of corporate acquirers by the country of the acquirer and the target firms. Does deal activity that is led by government- controlled acquirers emanate from some countries more intensely than others? Are government-controlled acquirers more likely to pursue targets in certain countries over
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others? If so, in either case, what are the country-level attributes or market conditions of those countries that dominate government-led cross-border acquisition activity and which determine the target markets that attract this activity? In order to answer these questions, we need to compute two kinds of cross-border ratios of deal counts and cumulative deal value (in 2000 Constant U.S. dollars): the first measures the fraction of all cross-border acquisition activity emanating from a given country i which involves government-led acquirers and the second measures the fraction of all acquisition activity that targets a particular country j which involves government-led acquirers. In order to measure these fractions in a reasonable way, there must be sufficient activity overall to justify its consideration, so we exclude countries in which there are fewer than 50 cross-border acquisitions, whether led by government-controlled or corporate acquirers.9
In Table 2, we report the countries in rank order by those which have the highest fractions of government-led activity measured by cumulative deal value by acquirer country (Panel A) and by target country (Panel B). The acquirer countries in which government-led deals dominate all cross-border activity include Venezuela (85% of deal value, 47% of deal counts), UAE (77%, 48%), China (72%, 39%), Saudi Arabia (70%, 50%), the Czech Republic (68%, 17%), Khazakhstan (65%, 17%) and Kuwait (62%, 18%). By raw cumulative deal value, however, China leads the list with 833 deals and
$114 billion of deal activity, both statistics that far exceed any other countries in the sample (interestingly, France is second with 717 deals and $93 billion). Many of the countries at the top of the list are those that are typically identified with large SWFs built
9 This constraint has only a modest impact on the overall sample. The overall count of cross-border deals fall from 5,317 to 4,759 and the cumulative deal value drops from $619 billion to $592 billion.
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up with accumulated foreign currency reserves due to oil exports and export-driven trade, but it is not exclusively so (e.g. France, Italy, Japan, Sweden each represent more than
$20 billion of government-led deal activity).
The leading target countries for government-led cross-border acquisition activity are somewhat more surprising. UAE has the highest fraction by cumulative deal value (44%), but its fraction by the count of deals is low (3%) indicating that several large deals dominate their market. Hong Kong is second by the fraction of cumulative deal value (40%), first by fraction of deal count (16%), and is by far the largest target market in absolute terms (583 deals, $66 billion) on the list. Much of this activity stems from the government-led deals emanating from China, as seen in Panel A. But, in fact, the U.S.
and U.K. are both larger target markets in both instances at $125 billion and $90 billion, respectively. Because the fraction of the activity that targets the U.S. and U.K. with government-led acquirers is so low (less than 4%), they are both reported in the “Others”
category and dominate it almost exclusively. The other countries that are primary targets for government-led cross-border acquisitions include Malaysia (20% of deal value, 4% of deal count), Finland (20%, 4%), the Slovak Republic (20%, 6%), Egypt (17%, 7%) and Indonesia (17%, 13%).
Though it is relatively easy to connect the dominant presence of China’s government-led acquirers in Hong Kong as the primary target market, it is more complex to discern it for the broader level of activity around the world. We will develop another more refined measure of the proportion of government-led activity by pairs of acquirer and target countries next, but Figure 2 offers a preliminary look by region. In Panel A, we
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report the countries in declining rank by raw cumulative deal value led by government- controlled acquirers and indicate which regions they target for their activity. For China’s
$114 billion of deal activity, the largest target component is Developed Asia (about $65 billion, almost all of which targets Hong Kong), followed by the U.S./Canada (about $25 billion) and Developed Europe (about $10 billion). France’s $90 billion of government- led acquisitions mostly target Developed Europe, then the U.S./Canada, whereas Singapore’s acquisitions are evenly split between Developed Asia and Europe. UAE’s and Saudi Arabia’ s government-led acquirers total about $65 billion each, but UAE’s prefer Developed Asia and Europe whereas Saudi Arabia’s tilt their acquisitions toward Developed Europe and the U.S./Canada.
The U.S. is the largest target country for government-led acquisitions ($125 billion) and, in Panel B, we note that the dominant acquirer countries are surprisingly from the EMEA region (Emerging Europe, Middle East and Africa), followed by Developed Europe and then Emerging Asia. The $90 billion in government-led acquisition activity targeting the U.K. arises from Developed Europe, Developed Asia and then the EMEA region. For Hong Kong, the dominance of Emerging Asia (mostly all China) in its $65 billion of deal activity is quite apparent. Cross-border activity involving government-controlled acquirers targeting Australia almost exclusively come from Emerging and Developed Asia.