For many companies doing a deal is the best – or only – way of tapping into growth markets, largely because it is faster than going-it-alone. But deals in growth markets remain incredibly challenging. Our research suggests that over 50% of deals that enter detailed external due diligence in growth markets fail to complete. We believe this is materially higher than in developed markets.
Justifying valuations is the promary cause of failed deals in growth economies
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For this study, PwC carried out an assessment of over 200 deals, and interviewed 20 senior deal makers who have bought businesses in growth markets to understand the root causes of problems, and how they overcame the challenges encountered.
While there are plenty of examples of successful deals in growth markets, that the deal makers we interviewed acknowledged that deals in growth markets are inherently riskier. There is a much bigger deviation, or range, of potential outcomes. We refer to this range as the delta, and in growth economies, the delta between a good deal and a bad one is much bigger. If things go well, investors stand to make a lot of money. But if things go badly, investors can lose significantly.
Growth markets are different, which is why our strongest recommendation is to build the local machinery needed to get a deal done well in advance of executing the first deal. This and other recommendationsresulting will help companies to avoid doing bad deals, to successfully complete on good deals, and to make sure a good deal doesn’t turn bad after the deal trophy is on the shelf.