Ready to reset your compass?
The geography of deal-making is changing fast. Over the last five years we have seen more deal value flow from the largest high growth markets (HGM) to mature market economies than in the other direction. Between 2008 and 2012 HGM companies invested US$161 billion into mature market companies, outstripping the opposite flow of US$151 billion. In 2012 alone, HGM companies closed deals for mature market targets worth US$32.6 billion, almost three times the amount they invested in 2005. We see this shift in dealflow direction as the start of something bigger, that will not just bring a much needed boost to the global M&A market but that can stimulate growth for both mature and HGM market companies alike. In this report, we look at how dealflows are changing and we also consider how new types of HGM investors are turning to M&A and the factors driving their investment choices. Large and mid-sized private companies have now joined the state-backed investors who were among the first to acquire mature market targets. HGM investors’ scope is also widening, with HGM to mature market M&A activity ranging from energy, raw materials and engineering to media, retail and consumer goods companies.
Getting to grips with new deal dynamics
Here are just some of PwC’s suggested measures for buyers and sellers in deals between high growth and mature market companies:
Addressing valuation mismatches
- Greater transparency by both buyers and sellers around deal drivers can increase trust/manage expectations.
- Sellers should not assume that an HGM company may have easier access to capital.
- Sellers need to understand the buyer’s investment timeframe and shareholder environment before setting premium.
- Clarify valuation techniques to ensure both parties are working with the same parameters.
Agreeing a timeframe for completion
- Both parties need to understand what constitutes a ‘normal’ timespan for negotiations and completion.
- Buyers should educate sellers early if special approval processes need to be followed.
- Foster relationships with key decision-makers at an early stage, so that dialogue is possible if the deal timetable begins to slip.
Connecting with decision-makers
- Take time early on to understand decision-making hierarchies – and who has the final say. This is particularly true for deals involving state-owned enterprises.
- Buyers bidding for targets with private equity (PE) involvement should have direct contact with the PE side as well as the target company’s management.
- Bear in mind that the time needed to develop relationships varies greatly from culture to culture.
Reconciling deal process differences
- Plotting the deal process and due diligence approaches of buyer and seller will highlight where they diverge.
- Communicating the reasoning behind due diligence practices can make the other party more comfortable/willing to cooperate with the process.
- Be aware that high growth markets can have very different reporting, tax and legal demands and systems that can slow the due diligence process and necessitate more requests for information.
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For further questions please contact:
Lead Transactions Partner
Tel. +32 2 710 74 23