As both companies and countries in the West and Japan stumble under debt, a new enthusiasm for deals has already emerged in India, China and other developing countries.
Swollen with cash from fast-growing economies, many emerging-market companies are on the prowl for acquisitions. At the same time, their counterparts in the West — seeing few prospects at home — are opening their wallets to move into developing countries.
On Monday, British insurance company Prudential said it would buy the Asian assets of American International Group for $35.5 billion, a deal that would make Prudential’s earnings from Asia more than half the company’s overall profits.
So far this year, Bharti Airtel has bid $9 billion for the African assets of Kuwaiti company Zain; Royal Dutch Shell has struck a $12-billion joint venture with Brazilian ethanol giant Cosan; and Reliance Industries Ltd is pursuing LyondellBasell Industries in a $14.5-billion deal.
Enthusiasts of emerging markets say the flurry of activity is part of a fundamental shift in global business. “This will be the century” of the emerging market, Goldman Sachs’s Chief Financial Officer David Viniar told reporters in February.
While optimism toward emerging-market deals is palpable, the reality for deal makers may not be so rosy.
The Tata Group made two big acquisitions in recent years — Jaguar Land Rover for $2.3 billion and Corus Steel for $12 billion — that have not lived up to expectations. Analysts said the group paid too much.
“A lot of them did these acquisitions thinking that the boom will last forever, a mistake made across Western economies,” Rajeev Chandrasekhar, Member of Parliament and the founder of BPL Mobile.
Indian firms are now thinking through mergers and acquisitions more carefully, said Rana Kapoor, chief executive of Yes Bank. Executives are focusing on buying firms that can help them sell to consumers in emerging markets where consumption is growing.