China-Asia Region Seen Big For M&A, But Risky

Business executives view China, India and Southeast Asia as the hottest destinations for merger and acquisition activity, but they also feel the region is the riskiest to operate in, according to a risk assessment survey.

The poll, sponsored by insurance broker Marsh, along with the consulting firms Mercer and Kroll, all subsidiaries of Marsh & McLennan Companies, asked 670 executives their attitudes to cross-boarder merger and acquisition activity. The survey was conducted by the Economist Intelligence Unit.

Fifty-seven percent of respondents said they believe China, India and Southeast Asia will be the most attractive M&A region over the next 18 months, with North America coming in second at 43 percent. The least attractive destination was seen as Africa at 19 percent.

While the Asia region is an attractive destination for M&A activity, it is also viewed as a risky place to do business. Of major concern is intellectual property protection, insufficient financial recourse against the seller, and bribery and corruption, executives said.

North America has its own concerns, primarily over the litigation and protectionist sentiments in the United States, said executives.

Commenting on the findings, Karen Beldy Torborg, Global head of Marsh's Private Equity and M&A Practice, said in a statement, "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.

"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. Having a thorough understanding of the risks will help lead to a more successful investment."

The report noted that market risk and insurance reviews are excluded from "a bidder's due diligence," calling this a "dangerous oversight" where deal makers "underestimate liabilities and risks they inherit and overestimate the insurance assets of the target company."

Warranty and indemnity insurance can be used to "avert lengthy negotiations or even potentially deal-breaking situations," the report added.

Copies of the complete survey are available through www.global.marsh.com Web site.