Optimism On Third World M&A

But there's still reason to be wary

As more nations opened themselves up to foreign investment in the 1990s, the dollar value of cross-border mergers and acquisitions grew tenfold--from $85 billion in 1991 to $850 billion in 1999, according to figures compiled by the United Nations. And a healthy share of that M&A money has gone into the Third World. About 13% of acquired or merged assets in 1991 were in developing countries. In 1994, developing countries' share peaked at 31%. Since then the percentage has drifted back into the low teens.

This year, the value of M&A in developing countries should rise as acquirers increase their efforts to globalize and take advantage of the Internet, according to Morgan Stanley Dean Witter & Co. analysts Joseph P. Quinlan and Andrea L. Prochniak. They won't venture a guess as to the total dollar value but say it should rise somewhat as a share of overall cross-border M&A. Companies in the developing world will consent to mergers because they "don't want to be left behind" by new technologies, says Quinlan. And barriers to entry are falling in nations such as South Korea, Mexico, Brazil, Russia, and Poland, adding to Quinlan's upbeat outlook for more M&A.

That said, there are a few hurdles to overcome. "Any dramatic rise in U.S. interest rates is going to slow global mergers and acquisitions," says Quinlan. Also, fewer big privatizations are in the works. Many former state-owned companies, such as Brazilian telephone company Telebras, have already been sold to foreigners. A final reason to be wary is that leaders of certain countries--including Poland and China--would rather have multinational companies invest in their nations by building new factories as opposed to buying existing companies.

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