Monday, March 8, 2010
I’ve been blogging a lot about cross-border M&A, mostly covering Indian conglomerates purchasing firms outside of India. Emerging markets are not just experiencing outbound deals, there is also a lot of interest by western firms in acquiring targets in these markets. According to recent data by Thomson Reuters, 34% of deals announced thus far in 2010 involved a target or an acquirer (or both) in an emerging market. For example, just last week Prudential PLC, the British life insurance and asset management company, announced a $35.5 billion deal to purchase AIG’s Asian assets. The deal would fundamentally transform Prudential, making it a major player in the Asian insurance market.
These cross-border deals represent an important shift in deal-making and M&A activity. This is pretty exciting stuff especially given the overall decrease in M&A activity in the west. But cross-border M&A deals in emerging economies can also be somewhat thorny for deal makers. As articulated in this recent article “while optimism toward emerging-market deals is palpable, and the macroeconomic signs are positive, the reality for deal makers may not be so rosy. Deals in emerging markets often run into surprises like onerous government intervention or corporate management that, at the last minute, changes terms or tactics.”
Cross-border deals involve social, political, cultural and economic sensitivities that require sophisticated deal makers and counsel. For example, due diligence may involve an investigation into deal risks that are not always common in domestic deals (FX issues, political instability, etc.). Lawyers advising clients on emerging market M&A deals will need to be nimble and creative in their thinking, and have an understanding of the macro-economic and political environment beyond the typical domestic deal. Moreover, they must be ready to ask tough questions to which there may not be easy answers. It is not just the diligence process that is different. Deal documents will often look quite different from those used in typical domestic deals. I think some of the interesting questions for scholars and practitioners to investigate are whether, how and why deal documents differ, and to study the extent to which parties entering into acquisition deals in countries that seem to have very different legal rules nevertheless tend to develop roughly similar solutions to the characteristic problems that arise in acquisition transactions.