As the Pace of M&A Picks Up, Emerging Markets Stand Out

Amid signs that global mergers and acquisitions (M&A) activity is accelerating, the emerging markets remain a hotbed of M&A activity and will remain so for some time to come, according to a new report by The Boston Consulting Group (BCG).


The so-called BRIC countries of Brazil, Russia, India, and China are leading the charge, accounting for 60 percent of all emerging-market deal activity.


Today, one in four M&A deals involves a buyer or seller from an emerging market.


The report, titled "BRICs Versus Mortar? Winning at M&A in Emerging Markets," says that emerging-market dealmakers are focused on acquiring technology and management know-how from developed economies. In fact, veteran dealmakers and advisors increasingly report that BRIC-based acquirers are now seeking targets in developed economies that can serve as platforms for global expansion.


“The search for advanced management knowledge in combination with market access is emerging as a major motivation for outbound acquirers from the BRICs, especially China,” said Jens Kengelbach, a BCG partner and a co-author of the report. “It is even surpassing technology transfer as an M&A motivation. The management of companies targeted by BRIC acquirers should be given incentives to facilitate the transmission of management know-how.”


Fast-Growing Consumer Markets Lure Acquirers
Acquirers from developed countries, meanwhile, have widened their acquisition focus the BRICs and other emerging markets. No longer merely seeking resources or low-cost labor, they are seeking growth in regions where the middle class is expanding rapidly and disposable incomes are rising. Cardinal Health, Disney, and Unilever are just three of the companies from developed economies that have recently made acquisitions in the BRICs, and the success of their deals is

likely to spur activity by other consumer-facing companies.


Success in emerging-market deal making doesn’t come easily, however. New research undertaken for the report reveals that, with one key exception, acquirers from emerging markets generate higher returns on emerging-market deals than acquirers from developed economies.


Emerging-market acquirers are generally more familiar with the cultures, languages, and markets of their targets than acquirers from developed markets, and that greater familiarity translates into a deal-making advantage. As a result, emerging-market companies that acquire other emerging-market companies earn an average abnormal share-price return of 2.1 percent on their deals, compared with 1.0 percent for acquirers from developed economies.


But that advantage almost disappears if the developed-country acquirer has deep experience in emerging-market deal making.


BCG’s research shows that serial acquirers from developed economies with a track record of six or more emerging-market transactions under their belts generate an average abnormal share-price return of 2.0 percent.


The more deals a developed-country acquirer makes, the more it learns, and the more it learns, the better its chances for success, according to the report.


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