Market Acquirers expected to make much larger impact on global cross border M&A in 2009

NEW DELHI, 9 February 2009 –  Although the credit crunch has severely impacted transactions activity, the trend of Emerging Markets (EM) companies acquiring Western European targets has continued to grow in 2008, from 188 in 2007 to 256 in 2008, of which 124 completed in the second half of the year.

In releasing ‘Going West’, the PricewaterhouseCoopers guide to what Emerging Market acquirers should do to maximise the success of their cross border transactions, Chris Hemmings, global corporate finance leader, predicts that while overall deal values are likely to fall by over 30%, volumes could rise to as much as 350 compared to the 256 recorded in 2008, as the average value of transactions declines. This number will be even more significant as a proportion of all deals in 2009.

Chris Hemmings commented “There are still fundamentally strong, under-geared EM companies looking to acquire sound Western European targets. They will be motivated by a number of factors such as market expansion, securing more of the value chain in their activities, acquiring knowledge and technology, gaining greater economies of scale, getting access to and association with international brands and diversifying their risk exposures. Also, in the short term at least, EM investors will have the chance to purchase or invest in distressed targets in Western Europe.” 

The falling valuations of western companies will not by themselves be a compelling deal driver for many EM companies. Sovereign wealth funds, for example, which bought minority stakes in large Western European companies, saw their investment values plummet as markets continue to slide. This year we would expect most acquisition activity to be at the lower end of the mid market (€150 million or less) rather than the headline transactions of recent years and this activity will be motivated by strategic intent.

Bharti Gupta Ramola, India leader for transactions practice PricewaterhouseCoopers, added “Prospective EM buyers must ensure that they position and present themselves in the best possible light when approaching Western European vendors, in order to obtain access to transactions and maximise their chances of completing a successful deal. This requires them to prepare carefully before approaching the target, analysing and addressing own weaknesses, delivering a compelling investment story and being open and transparent about their plans for the combined business.

“It is also critical for them to understand and appreciate the difference between a negotiated sale and a bid process, access to management and information that they can expect in either case, and regulatory issues particularly if the target business is listed overseas.”

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