And agreements in emerging markets are not just about low-cost manufacturing, access to natural resources or market access for basic global products. In addition, the contributors to this study have been involved in hundreds of trades in emerging markets. Our research suggests that over 50% of deals that go through detailed external due diligence in emerging markets do not go through.
A key reason for this is that many corporate boards struggle with perceived 'skyrocketing' valuations in emerging markets. Although there are plenty of examples of successful deals in growth markets, we have interviewed the traders. Access to high-growth economies with large populations, increasing prosperity and potential for innovation make a presence in growth markets a necessity for many companies.
Our research shows that 50-60% of deals that go into external due diligence in emerging markets are not completed. There is no magic bullet to increase the chance of closing deals in emerging economies, but based on the experience of successful dealmakers and our own expertise, we have five recommendations to ensure you are on the right side of the pack. delta factor. However, there is also a tendency to underinvest resources to close deals in emerging economies.
Management in mature markets must be taught the necessity of taking greater risks in growing markets."
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They can also be a way to take over rivals in emerging markets that could pose tomorrow's biggest threat to the global market. The banking sector is a good example of this, where banks in Brazil and Turkey have developed some of the best technologies in the world. It may technically be a liability, but in the local context the liability will never materialize.”.
In terms of how to overcome these issues, the main theme emerging from both the discussions and our own experience concerns the use of local advisers in care teams so that the context of the risks involved is set focus. Working capital is difficult to predict, as it is not necessarily tracked in financial reporting.” Also, in a secondary acquisition, a private equity fund may not fully appreciate the value of the option if it only affects earnings in the long term.
Likewise, there are a number of business practices that may be more common in a developing economy, and thus pose a limited risk to the business, but would not be acceptable for ordinary problems. In the Latin American case mentioned earlier, PwC identified tax liabilities representing 35% of the target's enterprise value. A high-profile example of alleged misappropriation of funds in emerging markets concerns recent allegations of embezzlement at NASDAQ-listed China Medical Technologies8.
In general, we believe that tax compliance can be managed, either through new policies or indemnities in the sale and purchase agreement. There may be corruption, but if the business does not have a high component of government interaction, then there is less likely to be high levels of corruption in the business and it should be manageable. However, if there are questions about corruption in the core business, or its license to operate, then it's a deal killer.”
There were several instances of post-completion personnel issues that created operational difficulties in the deals we assessed. Most interviewees also suggested the importance of having at least one key person in the company loyal to the buyer, either a long-standing employee of the buyer or a direct hire. Examples of this in the public domain include the efforts of a British listed mining company to sell assets in Southeast Asia.
We have no guarantee that the seller will have assets in the future should we go after them. For family-owned businesses, especially in the Middle East, the key decision maker may not even be at the table. While in the past there has been a tendency to favor wholly-owned investments in emerging markets, partners offer a number of advantages.
Partnership problems were the most common reason for post-termination problems in the deals we evaluated.
One reason for this is that listed companies may want to be able to consolidate the results of joint ventures. In China, Tax Circular 698 will increase controls on sales and related capital gains from shares in offshore holding companies whose sole assets are operations in China. In addition, the recent suspension of the decision to open the Indian retail sector to foreign investment to allow 51%.
The transaction was referred to in the [incoming] party's manifesto, and parts of the sale and purchase agreement were read over the radio. Some of the countries with policies most conducive to FDI may now lie just beyond the BRICs, in countries such as Mexico, Vietnam and Indonesia.17. It is important to understand the attitudes of the person responsible for making a decision towards your industry, your company and even your country.
Sir John Stuttard, former Lord Mayor of London and former chairman of PwC China. It is important to get the support of the right people in China so that we can conduct effective lobbying and facilitate the process with government institutions.” Other family members who are not at the forefront often play an important role in making or breaking up a deal.
The environment is rapidly improving, and has been in the last ten years, due to the growth of the private equity industry, increased awareness of issues from IPOs, implementation of mandatory statutory audits and a number of others. Many companies are not organized in the best way and the costs of leaving employees are high.” In some small and medium-sized companies, there is the potential for violations of the FCPA or the UK Bribery Act.
Many countries in the region are members of the EU and some, such as Slovakia, are also members of the Eurozone. As a result, many of the issues found in other emerging markets, such as black cash schemes, have become significantly less prevalent over the last 10-15 years. Another ongoing concern is the quality of financial information, which is generally still lower than in the West.”
Companies that have failed often lacked sufficient knowledge of local people, business conditions and the environment.” No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any responsibility, responsibility or duty of care for any consequences that you or anyone else acts, or fails to act, in reliance on the information contained in this publication or for any decision based on it.
