If you want to expand overseas — from whatever your base — what do you do? Start up new in a country in which you’ve never operated before? Maybe a joint venture? Do a big acquisition there?
If you’ve decided that an acquisition is the best route forward, then you have the big decision to make about which country (or countries) to enter? This question is easy to ask, but often expensive and difficult to answer. Help is now at hand!
Cass Business School has an M&A Research Centre (full disclosure: I’m the director of that research centre). We’ve recently published, in conjunction with Allen & Overy, Credit Suisse and Ernst & Young, a new index which ranks 175 countries on the ease with which one can do an M&A deal there: The Cass MARC M&A Maturity Index. Ernst & Young have turned this study into an interactive website, and the study itself can be obtained from Cass here.
Whereas others have looked at the attractiveness of markets for M&A solely based on financial and economic factors, for example, or even the legal environment, this index looks at six country development indicators:
- Regulatory factors (e.g., rule of law and regulatory quality)
- Economic factors (e.g., GDP growth and economic freedom)
- Financial factors (e.g., stock market capitalisation and access to financing)
- Political factors (e.g., political stability and corruption of officials)
- Technological factors (e.g., R&D expenditure and innovation)
- Socio-cultural factors (e.g., people, talent and labour skills)
These are combined in the index and a score for each country is generated, ranging from 1.0 (best) to 5.0 (worst). Approximately two-thirds of countries, including Indonesia, Egypt, Ukraine and Nigeria, appear in the bottom grouping as relatively unattractive — and the reasons differ per country, of course. The top one-third has those that are mature (Canada heads the list, and ends with China) and those that are ‘transitional’, which is the most interesting group.
In fact, the press coverage of this study since its release three days ago has been greatest about this transitional group, which has a number of countries from the Middle East (led by the UAE but also including Qatar, Saudi Arabia and Kuwait), Central Europe (Czech Republic, Poland and some others), Latin America (Chile, Mexico, etc) and Asia (Thailand, India, Philippines, etc). You can see some of these articles here: Middle East and Asia, for example. There’s even a video: Cass M&A research signals the emergence of Asia.
I found one of the most interesting findings to be that the technological factors were the discriminating factor amongst those transitional countries as to whether they were attractive for M&A activity or not: in fact, technological development represented 40% of the differences between these countries. Amongst the most mature markets, socio-cultural factors were most important.
Very interesting will be to see the movement in a year when the second such index is issued, and at which time I expect to see some of the ‘transitional’ countries to move into the ‘mature’ category.