M&A in fast growing countries: Traps and structuring opportunities

While contemplating transactions in fast growing economies presents attractive opportunities to many investors, the acquisition process as well as the integration process is more complex than when conducting deals in mature economies. Our experts in Transaction Services and Tax optimization often encounter a number of risks threatening the success of the deal-making process in fast-growing markets or the success of the subsequent integration process. In this study, we shed light on transactional risks and opportunities based on our experts’ experience from conducting due diligence and tax optimization in growing markets.

We took an extended approach to the notion of fast growing economies by including the five BRICS (Brazil, Russia, India, China and South Africa) and adding another ten promising and growing economies which may present attractive opportunities to investors, as follows: Algeria, Egypt, Indonesia, Malaysia, Mexico, Nigeria, Philippines, South Korea, Turkey and Vietnam.

The main traps identified by our experts during the due diligence processes are related to

• the accuracy of the financial information,
• ownership and governance practices,
• regulatory and legal issues.

On the other hand, tax optimization requires identifying and avoiding various tax traps (such as thin capitalization rule) but also benefiting from several tax incentives such as tax treaties and the rules for amortization of assets. Our experts emphasized the importance of engaging with multiple levels of control of the information provided, enlarging the scope of the due diligence to address the critical areas and conducting work on the ground with local experts and advisors.