- The Find: More than half of M&A deal-makers expressed significant interest in China, India and Southeast Asia despite their belief that risks in the region nearly equal those in Africa.
- The Source: “M&A Beyond Borders: Opportunities and Risks,” commissioned by Marsh, Mercer and Kroll and drawing on research by the Economist Intelligence Unit.
The Takeaway: Asia, with its rapidly expanding economy, massive market, and relatively cheap labor costs is a hot destination for M&A activity, but don’t underestimate the risks of doing business there just because it’s popular. The Economist Intelligence Unit surveyed 670 execs from across the globe asking them to rate the risk in various regions on a scale of 1 to 8. Africa, with its headline-grabbing troubles and underdeveloped infrastructure, was rated 5.5. Asia was just slightly lower at 5.3.
Why is Asia so risky? Deal-makers cited the usual — “questionable business practices” and “intellectual property protection.” More surprising, considering press coverage of China’s pollution woes, were concerns over recently passed environmental regulation. Though China still lags far behind the U.S. and Europe on this front, the report cautions companies to be aware of tougher laws and stricter scrutiny.
Don’t think the risks will stop companies from doing deals, however. Karen Beldy Torborg, Global Head of Marsh’s Private Equity and M&A Practice, reminds us that “despite the perceived risks of investing in this region, the level of M&A activity in recent years suggests that the expected reward is much stronger.”
