Cross-border mergers and acquisitions in emerging markets: Opportunities and risks

Strategic insights into mergers & acquisitions in high-growth emerging markets

By John Blake, Partner at Translink Corporate Finance South Africa

Emerging markets have become key destinations for cross-border mergers and acquisitions (M&A) as companies from developed economies seek growth beyond saturated markets. These regions offer significant opportunities but also present unique challenges that require careful navigation. Covering over 36 countries, Translink Corporate Finance provides clients with access to a global network of M&A targets (sellers) and buyers. However, successfully executing cross-border M&A in emerging markets requires specialised expertise to address these complexities.

Opportunities in emerging markets

Emerging markets – spanning Asia, Latin America, Africa, and Eastern Europe – offer higher GDP growth rates compared to developed economies. This growth is driven by expanding middle classes, urbanisation, and rising consumer demand, making these regions attractive for investment. For example, India and Brazil are seeing notable M&A activity in the fintech and renewable energy sectors, capitalising on technological advancements and sustainability trends. In Africa, the growing middle class and the large youth market is fuelling investment in infrastructure, retail and consumer goods and services.

Investing in emerging markets also allows companies to diversify geographically, reducing dependence on home markets. These economies offer access to natural resources, competitive labour forces, and cost efficiencies through vertical integration.

Many governments in emerging markets are implementing reforms to attract foreign investment, such as tax incentives and regulatory streamlining, making these markets even more appealing.

Risks to consider

Despite the opportunities, emerging markets present several risks. Regulatory frameworks can be unpredictable, marked by abrupt policy changes and bureaucratic hurdles. Political instability or corruption can further complicate investment decisions.

A notable example is the shifting regulatory landscape in Africa’s mining sector, where foreign investors frequently face abrupt changes in licensing, tax policies, and operational regulations. These uncertainties can affect the viability and profitability of investments in the sector.

Cultural and operational differences can also pose integration challenges, with misaligned expectations leading to inefficiencies.

Emerging markets are also more vulnerable to currency fluctuations, inflation, and economic shocks, which can impact the profitability of investments.

Due diligence can additionally be more difficult, with limited access to reliable data and corporate disclosures, increasing the risk of misjudging potential synergies or liabilities.

Strategies for success

1. Thorough market research: In emerging markets, understanding local conditions, competitors, and regulatory environments is crucial. By analysing socio-economic trends and consumer preferences, companies can identify the right sectors and opportunities for growth. Comprehensive research also highlights potential risks such as economic volatility and regulatory changes, ensuring informed investment decisions.
2. Strong local partnerships: Collaborating with local firms and advisors provides valuable insights into navigating legal, cultural, and operational complexities. Local partnerships help build goodwill and community trust, ensuring smoother integration and better acceptance of foreign investment, ultimately contributing to long-term success. Many investment jurisdictions require alignment and joint ventures with local partners, i.e., South Africa’s Black Economic Empowerment regulation, which requires local shareholding in foreign investment projects.
3. Risk mitigation strategies: To manage the uncertainties of emerging markets, companies should employ tools like currency hedging, political risk insurance, and phased investments. These strategies help mitigate financial and political risks, while contingency plans provide a safety net against unexpected disruptions.
4. Integration planning: A successful integration strategy prioritises cultural alignment, talent retention, and operational harmonisation. Companies must focus on aligning business practices, retaining key talent, and streamlining operations. Continuous monitoring and adaptability to local market conditions are essential to ensure long-term success.

 The future of cross-border M&A

Despite the challenges, the allure of high returns and strategic advantages ensures that emerging markets will remain a key focus for cross-border M&A. With global economic dynamics shifting towards these regions, savvy investors who approach these opportunities with diligence and adaptability are likely to reap substantial rewards.

As emerging markets continue to mature, the balance of opportunity and risk in cross-border M&A will evolve, underscoring the need for constant vigilance and strategic foresight. Translink Corporate Finance is your partner to get the deal done with our team of global experts on-the-ground in many emerging markets worldwide.