Deal risks typically relate to one or more of three key elements: the asset itself, the seller and or the government. The most common barrier to deal completion is an inability to get comfortable with valuations. Three other issues explain another 50% of problems. Teams fail to obtain approval from the government, financial information is less transparent, and often there are non-compliant business practices (e.g. corruption, labour & tax compliance).
The most common problems that emerge after a deal completes concern partnering. Beyond partnering, the same issues that prevent deals from completing also frequently emerge after a deal completes. Direct government interference is a common problem, and with a prevalence of state-owned enterprises in many markets, government involvement is often part of partnering. Problems with financial information, and non-compliant business practices are also common problems. There is also a range of potential issues that make it difficult to integrate and take charge of an asset.
Use our interactive tool below to learn about the pitfalls of doing deals in Growth markets. Select each issue to see the issue described in detail.
Justifying valuations is the promary cause of failed deals in growth economies
Explore deal pitfalls by territory via our heatmap
Dairy Products Co: The entire stake acquired stake was written down following the recall of a contaminated product which saw the death of 6 babies. The scandal resulted in several senior executives facing criminal charges and the eventual break-up of the local company
Media Co: The local company re-purchased the stake held by the foreign investor after it became clear that the foreign investor was unwilling to invest further in the business. The local company wanted more capital and the only way of selling a bigger stake was to buy back the capital and find another investor
Forestry Co: The company share price plummeted by 75% following a report accusing the company of perpetrating a fraud and overstating the value of its assets. Trading of the company shares was frozen as the allegations were investigated
Banking Co: This international bank are rumoured to have overpaid for this business and have also invested significant amount post deal. However, they eventually exited the business due to operational weaknesses and not really understanding the market which they entered
Travel Co: The company pulled out of a full take-over the company, in which they had a minority share, when the local CEO was detained by police under the suspicion of misappropriating funds and for purchasing a successful subsidiary from the government illegally
Telecoms Co: This company is currently involved
in a billion dollar tax dispute with the local government following their acquisition of a local telecoms company. The company were also forced to make a write down in 2010 due to intense price competition following the entry of a number of new operators into the market
Banking Co: Dominance of local firms forced market exit which involved selling of asset at a significant loss
Beverages Co: A court case was filed against its local JV partner for setting up competing ventures and using the trademark outside of the JV. Following a lengthy battle, it was forced to sell its stake to its local partner, leaving them to start afresh in the country
Manufacturing Co: Full production of these two plants was delayed after deal completion due to people and cultural and control issues. Problems included training staff due to language issues, bringing people into the country with the required skills and delays in obtaining import licences
FS Co: Part of a local company was forced to be sold at a loss when it was discovered there were insufficient collateral available for the bonds held
Deal risks typically relate to one or more of three key elements: the asset itself, the seller and or the government. Through our past deal analysis and through interviews, we have identified seven of the most common pitfalls facing deal-makers.
By examining a number of deals we traced the root causes of these problems to a set of critical differences in practices and governance between emerging and developed markets. Click on each risk area for common problems
This study explores how to reduce the chances of pre- and post-deal problems. It shows how to avoid doing bad deals, how to successfully complete on good deals, and how to make sure a good deal doesn’t turn bad after the deal trophy is on the shelf.
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