The fast growth of emerging economies has led Western multinational corporations to witness a rise of new competitors from the developing world. While mergers and acquisitions (M&A) have traditionally been the preserve of European and North American companies that saw it as an effective way of gaining market entry in new locations, companies in emerging markets, such as India’s Tata Group, China’s Huawei and Mexico’s America Movil, have worked to expand their global presence in recent years, by acquiring Western brands.

As the corporate players in the global M&A landscape diversify, the geographical reach of new transactions has become even more far flung. As a result, direct and secure access to documentation between buyers and sellers in disparate locations has become harder to establish. It was this problem that led to the inception of Germany-based global virtual data room provider Drooms, which provides an online due-diligence platform for M&A transactions.

Engaging with new markets

With a client list that features the biggest names in financial services, including Goldman Sachs, UBS, Deutsche Bank and Deloitte, Drooms has supported more than 3000 transactions, with an aggregate value of $261bn.

“There is a general trend towards process efficiency and that is where we come in, supporting companies to run their M&As more efficiently,” says Jan Hoffmeister, the managing director of Drooms. “M&A is undergoing a standardisation of processing. It has accelerated and this really has been to the benefit of people in the developing world, because they can now copy and paste processes that other companies have implemented, instead of reinventing the wheel."

The 2008 financial crisis did much to alter global M&A activity. According to the Organisation for Economic Co-operation and Development, global M&A flows declined from a peak of $1000bn in 2011 to $675bn in 2012. The largest decline occurred in Europe, which is Drooms’ core market.

According to Mr Hoffmeister, this has had a significant impact on Drooms' corporate strategy, as more companies are seeking opportunities in developing economies. Indeed, Drooms’ decision to engage in the Indian market was a significant indicator of the fact that a growing number of transactions have begun emanating from Asia, in particular.

“We certainly see an upward trend with respect to transactions [from the developing world],” says Mr Hoffmeister. “In the developing world, for instance in India where we are active, businesses are professionalising their processes. There is an incentive for these companies to globalise and acquire businesses in Europe and the US, the main reason being that they need to diversify regionally and take on technology and brand recognition, as they are weak on that side. They are looking for synergies, and the bigger the synergy, the more valuable the transaction.”  

Keeping faith in Europe

Mr Hoffmeister contends, however, that as the effects of austerity measures in the eurozone begin to take effect, this will significantly encourage the free flow of liquidity, which was one of the critical barriers to M&A within Europe at the height of the financial crisis. As a result, although emerging market transactions will remain a growing force in M&A transactions, the greater share of global M&A activity will still be concentrated in Europe, and it will be mainly driven by European and North American corporations.

“Europe is on a good wave and it will grow in the right direction,” says Mr Hoffmeister. “M&A needs trust and liquidity and if the trust is established, then people will come back to the market and I see that happening, as more banks are cleaning up their balance sheets. Being one of the market players, I do not have a reason to be bearish. The general perception of market conditions is improving and as far as I can tell, liquidity is available and it will increase.”