Firms fearful of managing merger risks in emerging markets

Fraud, money laundering and corruption have been named as the key reasons Western businesses have low confidence in managing risks when investing in emerging markets, a new survey shows...

LONDON - April 1, 2015.

Deloitte Financial's poll of 1,300 financial professionals across the banking and securities, technology and investment management sectors show less than ten and a half per cent are confident about managing the risks associated with acquisitions in emerging markets competently over the next year.

Nearly 12 per cent admit their businesses fail to conduct pre-deal due diligence for integrity risks including fraud compliance, corruption and money laundering.

Meanwhile, only around a quarter of respondents to the survey - entitled: "The Importance of Integrity Due Diligence in Emerging Markets M&A" - said their firms used business intelligence (including analytics) to identify integrity risks.

When asked to what extent integrity and fraud due diligence is part of your overall diligence efforts, less than 40 per cent answered 'Always'.

On the question of ‘What describes your company's emerging markets M&A risk appetite?’ 10 per cent said they were confident, 22 per cent said they were cautious and 12 per cent said they were concerned.

“It may be tempting to take shortcuts around fraud, FCPA and other integrity risks when deal timelines are compressed, the M&A market is strong and confidentiality agreements loom, Bill Pollard, a partner at Deloitte commented. “But, the DOJ, SEC and other enforcement agencies expect your pre-deal diligence to be strong."

Robust analytics can really help change the game in identifying M&A compliance and integrity concerns, he added, but few companies have the level of capability in this area that they should.

Many Western businesses can overlook such issues while competing to gain a foothold in a certain emerging markets, but failing to manage these cultural and business risks can provide Western companies with a false sense of confidence when operating within these territories.

Growing volumes of data available on acquisition targets should make it easier than ever to get a good overview of compliance and integrity risks involved, before sealing a deal, but the challenge companies face is in the aggregation and analysis of large volumes of disparate data, despite the glut of data visualisation platforms now on the market.

Worldbox CEO, Adrian Ashurst, commented: "Our own experiences echo these findings, in that due to the services of companies like ours - which secure reliable information about businesses in emerging territories - there's no real excuse to shirk due diligence and suffer low confidence when preparing to acquire interests in such traditionally difficult areas to do business in. We're providing ease of access to validated company information through 'on the ground' agents, superior background checks and financial record sourcing, all buyers have to do is commission the research."

Dealogic, the banking platform, reported last month that Western firms have made more than $750bn worth of acquisitions within emerging markets since 2010, despite concerns over emerging-market growth.

While traditional BRICS countries are now losing favour with emerging markets investors, with the exception of India; Indonesia, Malaysia, Latin America, Mexico, Colombia and sub-Saharan Africa are spurring a new wave of cross-border businesses arriving from the West looking to capitalise on their growth.

Presswire

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