Business warned to beware risks in emerging markets
Irish companies have been warned not to ignore the potentially serious risks to their businesses when making acquisitions in emerging markets.
According to a study by Deloitte into pre-investment background checks (known as integrity due diligence) conducted by European foreign direct investors on acquisition targets in emerging markets, there has been an increase in the number of investors conducting such checks since 1999, but the depth of this diligence can vary dramatically, as can the response to the risks identified.
The study found that 21% of international investors do not believe that the dependence of a target company on political connections or bribes would be a deal-killer, 54% would not have a problem with an inappropriate use of political connections by the target, while 22% wouldn't be concerned with the target being involved in money laundering.
Emma Codd, forensic partner at Deloitte UK, said that companies that fail to make themselves aware of these risks before investing could be exposing themselves to legal, financial and reputational damage.
"There are significant gains to be made from investing in emerging markets," said Codd. "This is reflected in the 69% of the companies surveyed reporting that most of their investments met or are exceeding expectations.
"However, in the rush to tap into the growth opportunities available in emerging markets, some investors are showing a willingness to ignore serious risks relating to a target company that – had they been related to a transaction in their domestic markets – would undoubtedly have killed a deal."
