New Delhi: Despite threat of slowdown, 85 per cent of acquisition minded businesses have stated that they expect their acquisitions to be domestic compared to 33% who are looking at cross-border transactions, reveals a joint study undertaken by ASSOCHAM and Grant Thornton.
Knowledge of the local market forces and drivers are certain key reasons as such, a domestic acquisition remains the most likely option, according to a study titled, ‘New Dimensions in M&A Regulatory Framework’, released by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) together with consulting firm Grant Thornton.
“M&A activity is being driven by growth hungry companies in a tepid economic environment, the ageing population of the west and a strong access to funding,” said Mr D.S. Rawat, secretary general of ASSOCHAM. “In general, the mid-market corporates that have emerged from the last few years relatively unscathed are commanding significant premiums as competition for good business increases.”
Globally, North America (91%) and, perhaps surprisingly, the BRIC countries (90%) continue to place the most importance on making acquisitions within their own borders though the results illustrate that Japan’s businesses have the greatest appetite (94%) for domestic acquisition, according to the study.
Many other regions remain discreet about stating whether they expect to exit in the future. Interestingly, Latin America (24%) is the region showing most interest, with a significant number of Brazil’s business owners (40% up from 22%) stating that they are looking to exit within the next three years, highlights the study.
“This may reflect the general feeling of confidence within that region,” said Mr Rawat. “Business owners appear to be riding this wave of optimism and hence expect to realise value from the forecast growth in the coming years.”
Business in Europe place proportionally more emphasis on expanding overseas (44%) compared to wanting to acquire within their own country (75%). This may reflect a relatively mature and sophisticated M&A market as well as the lack of economic growth within that region when compared to the growth and opportunities available in emerging markets.
UK business (17%) remain upbeat about selling their business within the next three years and claim to be almost twice as likely to seek a buyer than their mainland European counterparts (8%).
Whilst this may be a surprising outcome given the macro economic issues facing the UK, the results may be influenced by a wider appreciation of exit options amongst UK businesses and the effects of a highly mature private equity (PE) market, which has made substantial investments into UK over recent years.
Within the BRIC economies, there appears to be two distinct themes. “Whilst all see value from domestic acquisitions, indicating an increasingly vibrant and exciting local M&A market, only India (29%) and China (26%) show real enthusiasm to expand overseas,” observed Mr Rawat.