China, India M&A seen as risky but fruitful

Multinationals see China, India and Southeast Asia as the most attractive destinations for merger and acquisition activity over the next 18 months, Marsh & McLennan Companies Inc said in a report. Despite viewing China, India and Southeast Asia as almost as risky for investments as Africa, 57 percent of executives surveyed described their interest in the area as significant or very significant, the report found.

It said questionable business practices, problems with the local intellectual property regime and insufficient financial recourse against sellers were cited as areas of concern. "Despite the perceived risks of investing in this region, the level of M&A activity in recent years suggests that the expected reward is much stronger," said Karen Beldy Torborg, Global Head of Marsh's Private Equity and M&A Practice, in the report. "We are witnessing a fundamental shift of the global business landscape, with companies all around the world eyeing the potential of these countries and ramping up their investment and presence, accordingly," she added. The report draws on a survey by the Economist Intelligence Unit on the attitudes to cross-border deals of 670 multinational executives across the world. For North America, 43 percent of respondents described potential interest as significant or very significant while the figure was 41 percent for Western Europe, 31 percent for Eastern Europe, 29 percent for Latin America and 27 percent for the Middle East. Australia, Japan and Korea came in at 25 percent and Africa 19 percent.

However, executives gave China, India and Southeast Asia an average risk rating of 5.3 out of 8 for business-critical risks, just below Africa's rating of 5.5. Adding to widely acknowledged risks over intellectual property, a new area of concern in China was environmental legislation, the report said. "While the degree of environmental litigation and statutory enforcement in China still lags well behind North America and Europe, companies need to be aware of the increased regulatory scrutiny of their operations and the stricter enforcement of environmental legislation," it said. The survey also looked at executives' attitude to state-owned investment funds as potential M&A rivals. Such funds were seen as the strongest competition over the next 18 months for only 4 percent of those surveyed. Trade buyers and private equity firms were seen as a far greater threat, according to the report.