Value Analysis: An Applied Concept for Manufacturing and Service Industry
Introduction All organizations strive to create value for their customers. This value creates mind space for product and services. Value analysis, therefore, is a scientific method to increase this value. Value is a perception hence every customer will have their own perceptions on how they define value. However, overall at the highest level, value is […]
Why the Present Job Crisis in India is a Perfect Storm of Converging Trends
Why India is in The Eye of Perfect Storm With Regards to the Jobs Crises By now, there is a consensus among all experts and other stakeholders that India is in the midst of a severe Jobs Crisis brought about due to several converging and intersecting trends. With Unemployment at a 45 Year High and […]
Should There be Reservations in the Private Sector and the Alternatives for Social Justice
The Vexatious Issue of Reservations in the Indian Private Sector Every now and then, the vexatious issue of Reservations in the Private Sector crops up in India and more so, in the run up to the elections that are held every five years or less. This issue that polarizes Indian society and policymakers apart from […]
IT Systems Operations and Best Practices for Disaster Prevention and Recovery
IT systems are the most sensitive systems that are prone to failure and disaster. The risks that can cause breakdown of the systems and loss of data are many. As the data is something that is very important for the existence and continuity of the business, every Organization needs to have a proper Disaster Recovery […]
Project Control and Engineering Change Control in ERP
Project control module is used for organizing long term projects such as building a ship or power plant. The production environment resembles make to order situation where customer order driven purchasing, production, estimating, engineering, planning and control is done. This module also enables in setting up, analyzing and amending the budget for the project undertaken […]
Cross border Mergers and Acquisitions or M&A are deals between foreign companies and domestic firms in the target country. The trend of increasing cross border M&A has accelerated with the globalization of the world economy.
Indeed, the 1990s were a “golden decade” for cross border M&A with a nearly 200 percent jump in the volume of such deals in the Asia Pacific region. This region was favored for cross border M&A as most countries in this region were opening up their economies and liberalizing their policies, which provided the much, needed boost to such deals.
Of course, it is another matter that in recent years, Latin America and Africa are attracting more cross border M&A. This due to a combination of political gridlock in countries like India that are unable to make up their minds on whether the country needs more foreign investment, the saturation of China, and the rapid emergence of Africa as an investment destination.
Further, the fact that Latin America is being favored is mainly due to the rapid growth rates of the economies of the region.
Having said that, it must be remembered that cross border M&A’s actualize only when there are incentives to do so.
In other words, both the foreign company and the domestic partner must gain from the deal as otherwise; eventually the deal would turn sour.
Given the fact, that many domestic firms in many emerging markets overstate their capabilities in order to attract M&A, the foreign firms have to do their due diligence when considering an M&A deal with a domestic firm. This is the reason why many foreign firms take the help of management consultancies and investment banks before they venture into an M&A deal.
Apart from this, the foreign firms also consider the risk factors associated with cross border M&A that is a combination of political risk, economic risk, social risk, and general risk associated with black swan events.
The foreign firms evaluate potential M&A partners and countries by forming a risk matrix composed of all these elements and depending upon whether the score is appropriate or not, they decide on the M&A deal. Third, cross border M&A also needs regulatory approvals as well as political support because in the absence of such facilitating factors, the deals cannot go through.
If we take some recent examples of cross border M&A deals, the Jet-Etihad deal and the Air Asia deal in the aviation sector in India are good examples of how cross border M&A deals need to be evaluated against the points mentioned previously.
For instance, there is both support and resistance to the Jet-Etihad deal as well as for the Air Asia deal. This has made other foreign companies weary of entering India. On the other hand, if we consider the cross border M&A deals in the reverse direction i.e. from emerging markets to the developed world, the Chinese oil major SNOPC had to encounter stiff resistance from the US Senate because of security concerns and potential issues with ownership patterns.
Of course, the Unilever takeover of its subsidiaries around the world is an example of a successful deal. The clear implications of these successes as well as failures is that there must be a process that is structured and standardized in each country and by each firm on how to approach the M&A deal. Otherwise, there are chances of hostility creeping into the process and vitiating the economic atmosphere for all stakeholders. More than this, the due diligence must be carried out before any such deals are considered.
Finally, there has been a huge outcry from civil society in almost all the emerging markets in recent months. This has been mainly due to public anger at crony capitalism and tiny elite cornering all the benefits.
Therefore, the most essential condition before cross border M&A is actualized is that there must be regulatory scrutiny about the ownership patterns and the holding structures.
Your email address will not be published. Required fields are marked *
