More than a quarter (28%) of cross-border M&A deals in emerging and developing markets by global listed companies are hit by major setbacks such as regulatory investigations, government opposition, stakeholder litigation and management outcry, according to international law firm Freshfields Bruckhaus Deringer.
An analysis of cross-border transactions valued at US$750 million or more in high-growth countries by global listed companies announced since 2008 found that the higher the stakes, the greater the chances are of hitting a problem. More than a third (38%) of the deals valued at $2 billion or more encountered an issue, compared to around a quarter (23%) of those under $2 billion.
Regulatory probes are most common among the issues faced, affecting half (51%) of the troubled deals. Litigation impacted a third (35%) of the deals that encountered setbacks. Disputes such as activist protests and quarrels with landowners and employees were also prevalent, impacting one fifth (22%) of the troubled deals.
"M&A deals in growth markets usually have a different risk/reward profile when compared to M&A transactions in more mature markets," says Freshfields corporate partner Bruce Embley.
This research underscores the importance of thinking through the likely issues and putting in place effective and resilient risk mitigation solutions.
"No deal team at any listed company wants to deliver the message to the board that its big emerging market investment has hit an unexpected and significant obstacle," adds Embley.
Edward Braham, global head of corporate notes that regulators around the world have increasingly been flexing their muscles, especially since the global financial crisis.
Among the cross-border M&A deals facing significant issues made public include Indian telecoms giant Bharti Airtel’s $10.7 billion acquisition of Nigeria’s Zain Africa in 2010. Nigeria’s High Court declared its ownership null and void; the Congo Republic launched a regulatory dispute over its telecoms licence; an employee attempted to block the sale and the Kenyan government initiated a tax investigation.