Where to Go For Your Next M&A Spree

A business school’s analysis finds that technology is a much more important factor than politics.
Andrew SawersAugust 17, 2012

If you’re looking at your corporate map and trying to figure out which geographical territory ought to be your next target for acquisitions, you could do a lot worse than have a look at the latest study from the M&A Research Centre (MARC) at London’s Cass Business School. Researchers there have compiled an M&A Maturity Index that ranks 148 countries according to how attractive they are from an acquisitions perspective.

The United States and Singapore top the list, followed closely by the United Kingdom, Hong Kong, and South Korea. So far, so good, but the index really comes into its own when it is used to evaluate emerging markets rather than developed ones.

In fact, “nontraditional” market M&A deal volumes have taken off in the past several years: in 2005 those markets accounted for 25% of global M&A deals announced, while last year the figure was 39%. In that time, those markets’ share of global GDP has risen from a little under 53% to about 56%. (“Nontraditional” means markets outside of North America, Western Europe, Australia, New Zealand, and Japan.)

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Co-author and MARC deputy director Anna Faelten says that because M&A is by definition a long-term investment, “we try to capture how attractive the country is for investment, but also how sustainable it is to continue doing business in that country.”

There are five factors, given equal weight in the index, with varying numbers of subfactors in each:

  • Regulatory and political factors — e.g., political stability and the control of corruption.
  • Economic and financial factors — e.g., GDP size and growth, inflation, and access to financing.
  • Technological factors — e.g., innovation and the level of high-tech exports.
  • Socioeconomic factors — e.g., population size, growth, and age.
  • Infrastructure and assets — e.g., road and rail networks and number of registered companies.

MARC ran the survey last year and, by using historic data, has also been able to calculate each country’s ranking as it would have been five years ago. This gives an interesting view as to how things have changed in that time: Ireland stands out as a Western European country that has fallen sharply — down 15 places to 31st during the past five years — while Greece has tumbled 23 slots to 53rd. Romania is up 13 place to 36th.

Outside of Europe, some notable changes include Colombia (up 12 places during the past five years to 60th), Argentina (down 21 to 72nd), and Bangladesh (up 23 to 90th). Qatar has fallen five places in the past year alone, to 45th. Morocco is up 4, to 47th. The BRIC countries were given the following rankings: Brazil (34th), Russia (28th), India (38th), and China (9th).

The trick for acquisition-hungry companies is probably to look for those countries primed to move up the scale the most. You need to be careful, though, because additional research by the study team looked at how well each of the five key factors explained M&A deal volume. Technological and socioeconomic factors were found to be most important, with regulatory and political factors being by far the least important.

Businesses appear to invest in emerging markets either because their local populations create market opportunities or because they want to use those markets as a manufacturing base. In the latter case, the presence of high-tech companies that have already invested in the region is clearly a comfort.

Having decent political and regulatory structures in place is seemingly less important in determining the level of M&A activity. If a country has a low political score, “you’d probably go there anyway” says Faelten. “It’s other things that drive you to that area.”

Andrew Sawers is editor of CFO European Briefing, a CFO online publication.