Getting a foothold in the new M&A hot spots
Strong growth in seven countries tipped to join the ranks of the world’s largest economies alongside the BRICs will offer dealmakers plenty of M&A opportunity, but having the right people in place is critical to success in these markets.
A recent report Boston Consulting Group (BCG), entitled Winning at M&A in Emerging Markets says Egypt, Mexico, Nigeria, the Philippines, South Korea, Turkey, and Vietnam will play a growing role in the M&A market due to high deal volumes and solid returns.
The cumulative deal volumes of these countries from 2009 through 2012 ranged from $6.7bn in Vietnam to $168.7bn in the Philippines, and BCG said they were growing at high-double-digit rates, led by Nigeria's 96% compound annual rate.
BCG has six recommendations for M&A dealmakers chasing targets in these emerging economies – and most of them centre on having the right people in place.
1. Prepare for after the dust settles
Make an early start on planning for the postmerger integration by approaching foreign management as early as possible to allow buyer and seller to develop a shared understanding of one another’s business.
2. Local is leverage
”Consider venturing outside your usual circle of deal advisors and engaging a local team. Local insights, market knowledge, and takeover know-how are key success factors in emerging-market M&A,” said BCG
3. But global expertise is also essential
A company with an international footprint as well as local expertise can help dealmakers overcome language barriers, understand local industries, navigate bureaucratic and regulatory mazes, and develop important relationships with local business owners and decisionmakers, BCG said.
4. Incentivise management
"The success of an emerging-market acquisition often depends on relationships with a handful of key executives at the target company. It’s crucial to win their support and offer them compelling incentives to ensure their retention after the transaction’s close," advises BCG.
5. Manage change-management
Establish internal change-management teams. As many emerging-market buyers see advanced management skills as part of the asset being acquired, it is essential that local management of the target company supports the new owners.
6. Tackle cultural differences proactively
In some emerging markets, dealmakers shy away from negotiating deal terms, preferring trust and personal relationships to complex legal documentation. Advisors with local knowledge of business culture and the management styles of both parties can smooth the way.