We have over 2,500 lawyers worldwide who work wherever our clients need us.
We can put together tailored, multi-skilled, international teams at very short notice. Our relationships with leading local firms enables us to deliver a truly seamless service.
This means you get an unbeatable combination of international experience and understanding, tailored advice, and reliable local knowledge and contacts – whenever and wherever you need it.
Find out more about our global network by choosing a country or region
To find out more about our global network please contact us
Here’s the first tip about doing deals in emerging markets. The phones don’t often work. Around 15 years ago, I was working on deals in Moldova, in Russia, and northwest Africa, and back than, when the negotiations were local , it was challenging to get the job done: often no working phones or fax machines, and definitely no internet service. Getting the job done in those circumstances was good experience, since there are times now, especially in emerging markets, where it can feel only marginally easier. It is easy to get spoiled when you’re sitting in an office in mid-town Manhattan, on Fleet Street or in Hong Kong.Those who lived through the 1980s and the early 90s often say how nervous they would become when going into the office: developments took longer to become ‘market,’ there was no EDGAR database to check and you couldn’t tell your clients with a lot of authority whether or not what they were doing was consistent with what other people were doing… let alone whether or not it was going to be upheld by the courts. I think people nowadays often fail to appreciate what that was like.As M&A Journal recently reported, the timing of Carl Icahn’s takeover of TWA in 1985, for example, came in the midst of a heavy judicial season in Delaware, when the courts were coming up with doctrines that are still basically with us today. That dovetails nicely with doing deals in emerging markets today. There’s not a ton of precedent for what’s ‘market’ in a deal where, for example, a U.S. corporate is selling a stake in a regulated Indian joint venture to a Chinese financial buyer, and if there is, it can be hard to fish that out unless you have colleagues that have a lot of experience and have been there before. Also, when you are in negotiations in the emerging market, and you negotiate a bespoke compromise, you go back to the basic skills you were taught as a lawyer. You’ll take the hotel stationery out and draft it longhand and have it typed up. That kind of work—while fun and exhilarating—is definitely less commoditized than what you might be doing back at your desk. It ends up being more negotiated, and as a result, execution is more reliant on the talents of the professionals involved.Historically, the best lawyers in developed markets end up being the ones that are trusted advisors to the executive team and the board—they get and remain close to their clients not because they know the ins and outs of say-on-pay vote disclosure (though that has its place), but rather because they understand the heart of the problem, can explain to a client (and the other side) why it is important, can walk through the consequences, and consider what resolutions can be crafted to deal with that problem. It is a combination of appreciating risk and getting to an acceptable commercial result that you find in the best deal advisers. That is why Fortune 500, FTSE 100 and DAX-30 corporates will have their most trusted advisers with them on deals in emerging markets.Looking back at last year, global M&A volume was running about 15-20% short of 2011 through around the end of August. Then, in the U.S. and elsewhere in the world, M&A picked up and the fourth quarter was up significantly over 2011’s fourth quarter, to bring us, basically, to around the same total volume as 2011. We had about $2.2 trillion in M&A in 2012 and 2011; in 2010, we had a little above $2.1 trillion. So it did pick up dramatically toward the end of the year—though it is worth keeping in mind that the overall annual volume for each of the last three years is down materially from the $3.6 trillion or so we saw at the 2007 peak of the market. Had we had a soft fourth quarter in 2012, the annual numbers could easily have gone very much the other way, even when contrasted against a 2011 that had a very busy first half, followed by the debt downgrade and the fiscal cliff negotiations in the middle of the summer which put a damper on things for the second half of that year.All that is not to say that the 2012 global M&A data did not reveal some interesting items: emerging market M&A (whether buyer, seller or assets)—by whatever measure—are an increasingly important part of M&A. The value of global M&A investments targeting the world’s key growth markets surged by five percent in 2012 (to $162.4 billion) compared to the previous twelve months. Other data show M&A deals with some emerging market component as contributing around 20-25% of all M&A, and also increasing from 2011 to 2012. I’m not a great predictor of things to come, but in my view, there’s not a lot of profit in trying to fight trends like this.So looking at all this, it’s plain to see that deals are increasingly cross-border and increasingly multi-jurisdictional, which are two different, often misconstrued, things. You could have what feels like a straight-forward domestic M&A deal, with a U.S. seller selling a U.S.-headquartered division to a U.S. buyer… but that division—especially these days—is generally not just a simple U.S. division. It is quite often a multi-country business. And in contrast to the way things were fifteen or even ten years ago, businesses are substantially more integrated: they’re integrated for tax and other planning reasons through their overall structure, they’re integrated through their IT systems, and they’re integrated through their back-office functionality, like accounting, compliance and financial reporting. Pulling them apart, therefore, involves some serious planning and execution challenges. A multi-jurisdictional carve-out transaction (even if not a cross-border deal by traditional measures) will have material tax effects. There are data protection issues. There are IP/IT issues. There are employee issues. All of this requires thought at the front end of a sell-side process as you try and undo all of the sophisticated integration techniques that have been employed over the past ten years. If you don’t approach these with the same vigor as the other M&A workstreams, a prospective buyer might do that for you—which could lead to timing and price difficulties.Separately, in emerging markets, not all exits are as expected as a sell-side carveout process. Your exit can be thrust upon you. Take, for example, a Western corporate that enters a developing country, either through acquisition or joint venture. And let’s say that the business there starts to do really well. Well, the political reality can become unfriendly, and you can suddenly find yourself on the wrong end of an expropriation. And if that moment is the first time you are thinking about how to protect yourself, it can be too late. In our work, we have appreciated and advised our clients around BIT (bilateral investment treaty) structuring for many years now, and if you asked a businessperson if they would rather litigate against the government in a local court or arbitrate in The Hague, its kind of a no-brainer. So we will fold that kind of structuring on top of the other structuring elements that go into the front end of emerging market deal planning.Picking up on another trend we see is the effects of living in a world in which there is an enhanced regulatory approach to transactions on dealmaking. It is not uncommon for antitrust authorities to simply say, “There is no remedy that we’re willing to entertain and we’re blocking your whole deal.” You can also see the effects of an enhanced regulatory approach in the way Committee on Foreign Investment in the United States (CFIUS) approvals are handled here, and in the way Western corporates and sponsors approach anti-bribery and corruption diligence in targets. That kind of regulatory approach is not likely going away. And you can see it play out in all sorts of ways—beyond the ubiquitous discussions around break fees for deal failures—presenting challenges for all M&A participants. For sellers, it can mean that the advance work to anticipate a buyer’s (and maybe its financing source’s) concerns on bribery and corruption is increasingly important—similar theme to the one we discussed earlier in complex, international business separations. For buyers in auctions, it may mean understanding how this can play out with other participants that may not have as great a sensitivity to the Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act. Finally, it means understanding that not all things that are uncovered in due diligence are necessarily deal-breaking corruption problems, and having a sophisticated appreciation to the different kinds of global risks, and how to deal with them in transactions, is a critical element of execution. We see all of these themes play out in M&A processes.When you link these themes together, the challenges facing developed market corporates and sponsors become clear: if you assume that a corporate with a leading presence in Western or OECD markets could have antitrust challenges in M&A, that may lead to a conclusion that the best path forward is through emerging markets M&A. And doing deals in those jurisdictions could cause you to run into issues involving bribery and corruption. So, you have one enhanced regulatory arm, focused on antitrust, pushing you into doing deals that could slap you in the face with another enhanced regulatory arm, focused on anti-bribery and anti-corruption.Finally, looking at some of the other M&A drivers, there are interesting aspects of funds available for M&A that are worth examining closely. For example, the potential tax consequences to U.S. corporates repatriating funds (whether for M&A, or dividends or stock repurchases), creates some structural impetus for non-U.S. M&A by these entities: in other words, that can end up being the best use of their non-U.S. cash balances. We’ve seen this for a while, and expect it to continue, with a marginal volume, but nevertheless strategically important, effect on global M&A.More generally, as has been noted for some time, there continues to be a great deal of dry powder at private equity firms: proceeds from new fund-raising cycles and commitments available from older funds that they are nearing the end of their investment period, which has been (at leastin the U.S. and for the time being) combined with relatively strong debt markets. There also remains a substantial amount of corporate cash—some reports indicate upwards of $2 trillion—which at some point will be deployed, and the assumption is that at least part of that is toward M&A. These factors have been in place for some time, and while it certainly creates a cautious optimism, it is worth keeping in mind that they have not translated into a 2007-like sponsor M&A bonanza over the past couple of years.As the last few year’s data has shown, M&A in emerging markets is not going away. As a matter of fact, the dynamics are constantly changing. For example, recent data indicates that an increasing share of deals are emerging market to emerging market (Brazil to China, for example); which, while exhilarating for advisors, also means that M&A advisers, whether they are accountants, lawyers or investment bankers, must develop a good understanding of the issues that come up in these jurisdictions. It can be a question of getting trapped cash out of China. It can be a difficult question of interpretation of the new antitrust rules in Brazil. It could be data privacy in Europe.Getting deals done in the face of these challenges—that is what the new normal looks like.
This article first appeared in The M&A Journal
Login | Register
Legal notices |
Ts & Cs |
Responsible procurement |
Transparency in Supply Chains |
Attorney advertising: Prior results do not guarantee a similar outcome |