Why
emerging-market companies acquire abroad
Long focused on deals to acquire technology,
brands, or know-how, more emerging-market companies have begun using M&A to
tap into new markets.
After years of using cross-border deals to acquire
strategic and natural resources, multinational companies headquartered in
emerging markets are increasingly looking to penetrate new markets—just like
multinationals in developed markets do.
Growth in such deals
over the 14-year period from 2000 to 2013 reached double digits on an annual
basis, and by 2013, deal activity accounted for about 37 percent of the world
market for cross-border deals. Moreover, when we analyzed more than 1,000
cross-border acquisitions by emerging-market companies and categorized them by the
most common reasons companies pursue acquisitions, we found that the main
reason emerging-market companies reach across borders has been to fill
capability gaps caused by limited access to strategic resources, such as
technology, management capabilities, or other intangible assets in their home
markets. Over the longer term, only about
a third of cross-border M&A deals by emerging-market companies have been
made to enter new markets, acquire natural resources, or improve
efficiency—deal types that are more common among developed-market buyers.
That pattern, however,
is changing. As emerging-market companies have developed and matured, they’ve
completed fewer deals in pursuit of strategic resources and more deals to tap
into new markets, often located in other emerging countries. Companies that followed this rationale include Latam
Airlines Group, which merged its Chilean LAN Airlines with TAM Airlines of
Brazil in 2012, and the Philippine food and beverage company San Miguel
Corporation, which acquired Australia’s National Foods in 2005. In general,
market seekers are mostly from nondurable consumer-goods industries or
wholesale and retail.
Around every fifth dollar spent for
cross-border M&A by emerging-market companies has been in pursuit of natural
resources—though the scarcity of certain resources, such as rare earths, has
not led to proportionately more deals to secure access to them since 2010.
Well-known landmark transactions of this type include the acquisition of
Canadian mining company Inco by Brazilian metals and mining company Vale in
2006 and the takeover of Udmurtneft, a large Russian oil asset, by Chinese oil
and gas company Sinopec that same year. These companies tend to generate most
of their revenues in the domestic market and are disproportionately large.
Often, natural-resource seekers are state-owned enterprises, such as Sinopec or
Russian gas giant Gazprom.
The least common reason for emerging-market companies to acquire
abroad is in pursuit of efficiency. Motivated by low labor costs or specific
government policies related to import barriers or investment incentives,
acquirers move manufacturing capacity to foreign markets by acquiring
production-related companies abroad. The small but admittedly growing portion
of efficiency-seeking M&A by emerging-market bidders mainly flows into
other emerging countries, where production factors are comparatively cheap.
Notable examples of such deals are the acquisition of Malaysia’s Titan Chemical
Corporation by South Korea’s Honam Petrochemical in 2010, or Singapore-based
Biosensors International Group’s takeover of Chinese JW Medical Systems in
2011.
byDavid Cogman, Patrick Jaslowitzer, and Marc Steffen Rapp
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