The quest to decipher the essential risks associated with investments in emerging markets has long captivated M&A practitioners worldwide. Recent deal activity in this sphere has brought that quest closer to realization, making it a tantalizing pursuit. Over the past 12 months, the landscape of emerging market mergers and acquisitions (M&A) has witnessed remarkable growth in both volume and value.
According to Refinitiv’ data, the total deal value in the first nine months of 2021 reached $920.1 billion, marking a substantial 34% increase compared to 2020 and setting a record for the strongest start to an emerging markets deal-making year since 1980.
In this article, we’ll explore powerful M&A insights showing reasons behind such unprecedented growth, opportunities and risks for M&A in developing markets, and the role of technology in helping those M&A deals thrive.
M&A transactions in emerging markets overview
In terms of deal size, merger and acquisition news were hitting all records in the beginning of 2021.
The M&A transactions in emerging markets exceeding $5 billion amounted to $159.7 billion during the first three quarters of 2021, with 14 mega-deals contributing to 17% of the announced activity. Among the top three deals were:
- the $44.1 billion Naspers share swap in South Africa
- a $12.4 billion infrastructure investment deal by Aramco Oil Pipelines Company in Saudi Arabia
- an $11.3 billion rescue plan for the bankrupt Peking University Founder Group in China
Digging deeper into the data, cross-border emerging markets M&A activities surged to $361.3 billion, reflecting a remarkable 94% increase compared to the same period in 2020, establishing a new record.
Additionally, private equity-backed buyouts in emerging markets, constituting 18% of overall activity, reached a record $163.4 billion during the first three quarters of 2021, marking a 60% increase compared to 2020.
Such surge in M&A transactions in 2021 can be traced back to the extensive fundraising in 2018 and 2019, which finally gained momentum in the fourth quarter of 2020, following a period of pandemic-induced inactivity.
South East Asia and other regions
South East Asia stands out as one emerging market that has witnessed a considerable uptick in M&A activity over the past year, signaling positive post-pandemic recovery.
In Q2 2021, the region recorded $17.8 billion across 431 deals, marking a 100% increase in value and a 40% increase in deal count compared to the same quarter in 2020. Cross-border deals, especially involving investment destinations like Singapore and Thailand, are on the rise, with South East Asia expected to benefit from the realignment of global supply chains.
Furthermore, China, India, and Brazil accounted for 56% of the total emerging markets M&A activity during the first nine months of 2021.
South Africa, Israel, and Brazil also displayed strong year-over-year growth, offsetting double-digit percentage declines in Russia and the United Arab Emirates.
Nevertheless, investing in emerging markets presents considerable challenges and risks.
Decision-makers must navigate through the uncertainties, which include fraud, corruption, unfamiliar political landscapes, diverse cultures, and distinct business practices.
In some emerging markets, auditing standards may not align with Western norms, and relationships often serve as safety nets due to underdeveloped legal and court systems. Uncovering ties between management and government officials is particularly challenging but crucial during due diligence.
Emerging markets remain alluring for M&A practitioners as these economies are growing faster than developed ones and represent the majority of the world’s population and GDP. The drivers contributing to the recent surge in M&A activity, including contagion risks in the Chinese real estate sector, continue to shape the landscape, offering numerous opportunities to M&A practitioners.
With record levels of dry powder ready to be deployed, it is indeed a compelling time to engage in M&A in the emerging markets.
- Tip: As you navigate the nuances of M&A in these rapidly evolving markets, you might find that preparing for investment banking interview questions can be a valuable exercise. These questions often cover not only the technical aspects of M&A but also the ability to assess risks, adapt to diverse business practices, and demonstrate a comprehensive understanding of the market you’re stepping into.
How technology can help elevate M&A deals
Amidst this dynamic landscape of surging M&A activity in emerging markets, the role of technology and data management tools becomes increasingly vital. Virtual data rooms, in particular, have emerged as essential instruments for ensuring the success of these transactions.
In the intricate world of cross-border deals and international business operations, VDRs provide a secure and efficient platform for managing the flow of information, conducting due diligence, and maintaining data integrity. They offer the transparency and control required to mitigate the unique risks associated with emerging markets, such as data security concerns and regulatory compliance.
For M&A practitioners navigating the intricacies of these markets, VDRs play a crucial role in streamlining the process, from interest generation to post-deal reporting. They enable companies to securely share sensitive information, track document access, and collaborate with stakeholders across different geographies. Furthermore, in a landscape where relationships often serve as safety networks, VDRs help maintain data integrity and transparency while fostering trust among investors and partners.
As the world of M&A in emerging markets continues to evolve, the effective use of data room M&A solutions stands as a significant factor in facilitating successful transactions, safeguarding sensitive information, and driving the growth of these vibrant economies.
In conclusion, the realm of M&A in emerging markets is experiencing unprecedented growth, driven by robust deal activity and a surge in investments.
Emerging economies are becoming the focal point for business expansion, and with their rapid growth, they offer ample opportunities for M&A practitioners. However, they also present unique challenges and risks, ranging from corruption and unfamiliar business practices to regulatory complexities.
In this evolving landscape, technology plays a pivotal role, which is why virtual data rooms (VDRs) have emerged as indispensable tools for ensuring the success of M&A transactions.
