SOURCE: The Boston Consulting Group

The Boston Consulting Group

August 29, 2013 00:01 ET

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

Emerging Markets, Especially the BRIC Countries of Brazil, Russia, India, and China, Are Fast Becoming Deal-Making Hotspots; Their Fast-Growing Consumer Sectors Are Luring Big-Name Acquirers, Says a New Report From BCG

MUNICH, GERMANY--(Marketwired - Aug 29, 2013) - 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. The report, titled BRICs Versus Mortar? Winning at M&A in Emerging Markets, is being released today.

Today, one in four M&A deals involves a buyer or seller from an emerging market. Emerging-market M&A tracks three broad investment themes: dealmakers from the developed countries are searching for energy and natural resources to fuel their economies, as well as opportunities to meet the surge of middle-class demand for consumer goods. 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.

Guidance for Aspiring Dealmakers

The report concludes with a number of recommendations for dealmakers seeking opportunities in the BRICs and other emerging markets. BCG advises dealmakers to:

  • Be prepared. Begin due diligence early because limited transparency and often cumbersome bureaucracies will make the process more time-consuming than in developed markets.

  • Be local. Consider venturing outside your usual circle of advisors and hire a local team with local insights, market knowledge, and takeover know-how.

  • Cultivate key relationships. The success of emerging-market deals often hinges on relationships with a handful of key executives at target companies. Win their support and offer compelling incentives to retain them after closing.

  • Approach potential emerging-market acquirers early in the deal cycle. Consider engaging potential emerging-market acquirers even before the auction process gets under way. Bear in mind that emerging-market dealmakers may not be familiar with European- and U.S.-style auctions and may struggle to adhere to tight timelines.

  • Consider alternative deal structures. Joint ventures and alliances often give acquirers a chance to test the waters and gain a deeper knowledge of the market. They can also serve as the launching pad for follow-up acquisitions.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit bcg.com.

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Contact Information

  • The Boston Consulting Group
    Eric Gregoire
    Global Media Relations Manager

    Tel +1 617 850 3783
    Fax +1 617 850 3701
    gregoire.eric@bcg.com