Doing deals in India ‘tough’: PwC

Commenting on the findings of the report,N V Sivakumar,Leader Deals,PwC India,said: “In the context of doing a M&A transaction with private or family run companies in India,we have seen that the key decision makers may not be the people on the negotiation table it is often noticed that other family members who are not in the forefront play a significant role in making or breaking a deal.”

“Although a deal might appear to be going well,it could easily fall through,” Sivakumar added.

Once the deal is completed,by far the biggest problem is reconciling differences arising out of partnering,plus there is also a risk of a range of operational issues that make it hard to integrate and take charge of an asset,PwC said.

In 2011,the value of deals from companies in Western Europe and the US into growth markets was at least 140 billion pound; but more than half the deals that entered external due diligence did not complete.

The report,’Getting on the Right Side of the Delta: A Deal-maker’s Guide to Growth Economies’,of the deals that did complete but later ran into problems,the average cost to the buyer was around 50 per cent of the deal value.

“The study indicates that if a bad deal go through in emerging markets,the cost of problems averaged around 50 per cent of the total investment – “cost of problems” here refers to either divestiture costs/loss of divestiture/fines/ write-downs against book value,” Sanjeev Krishan executive Director PwC Transaction Services said.

“There could also be considerable intangible or personal costs,including share price impact,negative investor reactions and loss of management time from other productive uses,” Krishan added.

Failure rate of deals entering external due diligence is higher than developed countries,owing to factors like “inability to get comfortable with local market valuations,government interference,lack of transparent financial information and non-compliant business practices,” PwC said.

Companies should identify the root causes of the problems and take appropriate measures to manage the risk and boost their chances of a successful deal as the number of deals in growth markets are likely to increase this year.

“We expect the volume and value of deals in growth markets to increase this year,and for companies to continue to look further afield for new deal opportunities,” PwC Global leader – Deals John Dwyer said.

The BRICs are obvious choices but others such as Nigeria,Indonesia and Mexico also hold considerable potential.