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M&A maturity: assessing country risks and opportunities - EY - Global

M&A maturity rankings (top 10, leading “less mature” market countries and BRICs)

Rank Country Maturity
1 Canada 90% 82% 80% 100% 75% 100% 100%
1 United Kingdom 90% 75% 75% 94% 98% 100% 100%
3 United States 87% 79% 75% 94% 85% 88% 100%
4 France 86% 75% 75% 94% 73% 100% 100%
4 Japan 86% 82% 75% 94% 65% 100% 100%
4 Netherlands 86% 86% 75% 100% 83% 75% 100%
7 Denmark 85% 82% 70% 100% 85% 75% 100%
8 Sweden 85% 82% 75% 100% 78% 75% 100%
9 Germany 84% 82% 79% 100% 67% 83% 92%
10 Finland 83% 79% 60% 100% 83% 75% 100%
10 Norway 83% 75% 63% 100% 88% 75% 100%
23 Israel 73% 79% 60% 69% 65% 63% 100%
24 Chile 72% 75% 63% 94% 73% 63% 67%
24 Czech Republic 72% 71% 54% 75% 54% 92% 83%
24 Malaysia 72% 82% 79% 69% 71% 58% 75%
29 China 70% 82% 83% 50% 40% 67% 100%
49 Brazil 57% 54% 54% 44% 31% 75% 83%
49 Russia 57% 54% 55% 19% 38% 92% 83%
52 India 56% 64% 75% 38% 44% 42% 75%

Source: MARC – M&A Research Centre, Cass Business School

In Q3 2010, global M&A activity totaled US$599b, the strongest quarter for two years.

The M&A maturity index assesses the maturity of 175 countries around M&A transactions. The greater the maturity, the lower the risk of undertaking transactions. Where risks exist, there is, however, the potential for significant opportunity.

Below are the average M&A maturity scores globally and in each region. Each average is weighted by the GDP size of the countries within the group.

M&A maturity average (median) scores

Global average 71%
North America 87%
Western Europe 82%
Oceania 80%
Asia 68%
Middle East 56%
Latin America 55%
Africa 44%

Key M&A maturity profiles:

Overview: M&A maturity index

The markets remain in a state of flux. Each day brings news of positive economic trends, and worrying macro indicators. So the future remains uncertain.

However, the level of market volatility has decreased. The VIX index (a frequently quoted measure of stock market volatility) fell from a height of 80 in October 2009, to around 20 in October – December 2010.

Perhaps because of the increase in stability, confidence and optimism have slowly returned to many businesses. The recent EY Capital Confidence Barometer shows that 73% of companies are now more optimistic about prospects for their business than six months previously. This confidence has once again focused many on growth — both organic and inorganic.

With the markets remaining uncertain, there is today increased competition for growth. Our recent study Competing for growth shows that 85% believe competition will increase in the coming two years. Leading organizations take a broad range of views of how to win such growth.

Some have focused on cost competitiveness to improve margins. Others have concentrated on their capital agendas to source new funds via improved stakeholder relations.

Global completed M&A transactions

Source: Thomson SDC Platinum/MARC – M&A Research Centre, Cass Business School.
Only change of control transactions included.

Another option has been a focus on operational agility to improve productivity. But certain businesses are focusing on customer reach, expanding their access to clients via new markets.

The enhanced appetite for transactions has led to an increase in the volume and value of M&A. In Q3 2010, global activity totaled US$599b, the strongest quarter for two years. While well short of the heights reached in 2007, this level represents a 35% increase on the average quarter during what some are calling the “great recession” of 2008-09.

Another related trend is the ever increasing volume of cross-border transactions, especially those involving businesses from emerging markets. Data from Thomson suggests that 25% of deals globally in 2009 involved emerging markets. Compare this to the average of under 10% in the 1990s.

There has clearly been an increase in such deals, as companies seek to explore new markets and those in emerging markets step up overseas investment.

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, e.g., South America, how does one prioritize between say Paraguay and Uruguay?

The obvious challenge of doing deals outside a home country is familiarity with the target nation. Beyond the specifics of the business that might be on the table, numerous macro issues exist. Without awareness of these, risks can be left unmitigated and opportunities overlooked.

To help address these issues, we are proud to introduce the innovative country-level M&A maturity index. This has been developed in conjunction with the renowned M&A Research Centre (MARC), at Cass Business School in London.

Available online at, this new tool provides high-level, interactive insight into 175 countries around the world. Each is attributed a score identifying the overall maturity of the market for M&A. The greater the maturity, the fewer the risks. But where there is risk, so there is opportunity.

Using 6 factors, made up of 36 sub-factors based on publicly available data, these risks and opportunities are identified at a high level. A summary of these factors appears below. This analysis should prove a useful tool for comparing countries against each other and for surfacing issues requiring in depth-commercial due diligence.

The index, however, is only a starting point for considering country-level issues in transactions. But the benefit to the user is to gain a sense of potentially unfamiliar markets in a short period of time.

By benchmarking countries against neighbors or wider peer groups, it may be possible to begin to prioritize markets for potential transactions. And where concerns are identified, contact details are provided for EY advisors who are positioned to provide in-depth tailored advice.

We summarize the overall global M&A maturity picture. And then we look in a little more detail at four major emerging markets: the BRIC countries of Brazil, Russia, India and China. For each, a taste of the online tool is provided — a summary of ratings on each factor and a profile of some of the high-level risks and opportunities that transactions in these countries are exposed to.

  • Economic factors
    Economic factors include the overall macro picture — the size and shape of a country’s economy and growth rates. This forms the basis for assessing the economic stability and growth potential of local markets.
  • Financial factors
    Financial factors are those specifically related to capital and labor markets. These include the development of local stock markets, costs of staff and the availability of debt financing.
  • Political factors
    Political factors include both high-and mid-level indicators. At a high level, overall political stability is assessed. At mid-level, factors such as corruption are included.
  • Regulatory factors
    Regulatory factors refer to the local legal and regulatory environment. These include the rule of law, i.e., the consistency of application of rules and therefore the predictability of judgments under it.
  • Sociocultural factors
    Sociocultural factors are those relating to people and workforce issues. Of particular importance are the availability of talent and levels of skills.
  • Technological factors
    Technological factors relate to the availability and direction of technology. The level of investment in research and development and innovation are examples.

The global picture: emerging markets mature

 M&A maturity rankings

It is no surprise that the most mature markets are also those that have traditionally played the biggest part in M&A transactions. The United States and the United Kingdom top the rankings, beaten only by another established economy: Canada.

The remainder of the top 10 on the M&A maturity index are industrialized nations — Japan and Western and Northern European countries. Strong ratings for technological and sociocultural factors play their parts in pushing these countries to the upper echelons of the ranking tables.

What is, however, potentially surprising is the lofty position of other nations, often described as less mature, recently matured, or even emerging. Israel, Chile, the Czech Republic and Malaysia all appear in the early twenties of the rankings.

These nations are boosted by rather distinct factors. Israel scores best in technological factors. Chile in the political arena, Czech in sociocultural and Malaysia in economic factors. These states lead the BRIC countries that are typically mentioned in analysis concerning major emerging markets.

M&A country comparison

Of the BRICs, China perhaps surprisingly tops Brazil, India and Russia in the M&A maturity rankings. Technological maturity has contributed strongly to the success of China, while regulatory and political issues have impinged on its progress. Brazil also shows strength in technology but is again held back by the same factors.

Russia offers a similar profile, with a strong performance in the sociocultural arena, but an even weaker political score. And in India, good performances in financial and technological arenas are hit not only by regulatory and political concerns, but by sociocultural issues as well.

The exact causes of the success of countries such as Malaysia and Israel and difficulties seen in the BRICs requires a closer look into detailed sub-factors. On the following pages, each of the BRICs are profiled in some granularity. When analyzing these scores, it should not be forgotten that while a high score suggests maturity and ease of transacting, a low score offers challenges that, when overcome, may offer significant opportunities for forward thinking managers.

An example of where a risk might pose an opportunity is in the political group of factors. On one level, dealing in a country where stability is low and corruption is rife may seem off-putting. Risks around legal action under the US Foreign Corrupt Practices Act or local equivalents may deter many buyers from entering these markets.

But with the right due diligence and with appropriate insight into local issues, there may be the potential to navigate these concerns and do deals to grab growth opportunities that competitors are either unaware of, or unable to take.

Such risks and opportunities are not necessarily unique to one country, these may be present in several or pervade an entire region. As the graph below shows, the overall level of maturity varies between regions. While there are outliers in each geographical group, a definite trend emerges from the regional average. As mentioned above, Western markets lead on maturity, but perhaps surprisingly, Asia performs most strongly among less developed regional groupings.

The challenge of understanding regional trends and local variations is a testing one. But a good understanding of the nuances of each market can help reduce risks and improve opportunities. Picking the right country in which to invest may yield growth opportunities that help win the competition for growth.

M&A maturity average scores by region (weighted by GDP of constituent countries)

Source: MARC – M&A Research Centre, Cass Business School

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