Visit www.mandamaturity.com to access high level, interactive insight into 148 markets around the world.
After a short period of relative calm, renewed turmoil in the Eurozone is leading to new uncertainties. While business confidence may have risen in recent months, companies remain reluctant to engage fully with the M&A market.
This sentiment is illustrated clearly in the Ernst & Young Capital Confidence Barometer, which shows that while 52% of business leaders now believe the global economy is improving, just 31% plan to pursue an acquisition in the next 12 months.
M&A in rapid-growth markets
As in recent years, the growth story around M&A remains rapid-growth markets (RGMs). Although their pace of expansion has slowed, the key emerging economies continue to grow more quickly than their mature market counterparts.
With China suffering a slowdown in exports to Europe and North America, and India challenged on a number of fronts, other rapid-growth markets, such as Thailand and Malaysia, and more established markets such as Singapore and Hong Kong, are likely to offer good opportunities for M&A in the future.
However, M&A activity in developing markets has remained only steady, at around 40% of announced M&A transactions globally since 2009, demonstrating lower growth than might be expected. Transactors now considering M&A in these markets should conduct a robust assessment of M&A maturity to identify threats and opportunities in the countries they wish to enter.
As markets mature, the Ernst & Young Rapid-Growth Markets Forecast shows that trade is set to expand significantly among RGMs and between these countries and advanced economies. This is due to the projected emergence of further manufacturing hubs in RGMs and their increasingly powerful position in the global economy.
By 2020, the total value of trade between China and Europe will exceed US$1 trillion, a larger figure than European-US trade values, while European exports to Africa and the Middle East will be around 50% larger than to the US. At the end of this decade, the RGMs will account for 50% of global GDP, 38% of consumer spending and 55% of capital investment.
With markets remaining uncertain, there is increased competition for growth. Our 2011 study Competing for Growth in Emerging Markets found that 85% of global executives surveyed believed competition would increase by 2013.
Leading organizations take a broad range of views on how to achieve such growth, with some concentrating on cost competitiveness to improve margins and others focusing on their capital agendas to source new funds via improved stakeholder relations.
Another option is to focus on operational agility to improve productivity. And M&A remains a viable option in some situations.
After plummeting to the lowest level in two years in the first quarter of 2012, global M&A volumes rose by 10% in Q2 compared with the previous quarter, according to the Ernst & Young June 2012 M&A Tracker. Values were up 18% quarter on quarter. The rise in deal volumes was largely driven by growth in M&A activity in North America.
Yet, despite the positive trend, deal volumes are still at their second lowest level since the first quarter of 2010, and are 26% lower than a year ago, largely due to economic and political uncertainties affecting global M&A in general and Europe in particular.
So in this difficult environment which markets should be prioritized for investment? If a particular target is in play or on the radar, this may drive choice. But when the strategic intent is for expansion within a broader geographic area, such as South America, how does one prioritize deals between, say, Chile and Colombia?
The obvious challenge of doing deals outside a home country is to become familiar with the target nation. Beyond the specifics of the business that might be on the table, numerous wider issues exist.
Without awareness of these factors, risks can be left unmitigated and opportunities overlooked.
To help address these issues, we have updated the country profiles in the 2012 M&A Maturity Index.
This has been developed in conjunction with the M&A Research Centre (MARC) at Cass Business School in London.
Available online at www.mandamaturity.com, this tool provides high level, interactive insight into 148 markets around the world. Each is attributed a score identifying the overall maturity of the market for M&A.
Below are the average M&A maturity scores globally and of each region. Averages are weighted by the GDP size of the countries within the group.
M&A maturity average scores: