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Buying into China, India and South East Asia is nearly as risky as investing in Africa, according to findings from insurance broker and risk adviser Marsh, Mercer and Kroll.

Executives at multinational companies were polled for the M&A Beyond Borders: Opportunities and Risks report.

Despite the perceived risks, China, India and South East Asia were identified as the most attractive destinations for M&A activity during the next 18 months, with 57 per cent describing potential interest there as significant or very significant.

For North America, the figure was 43 per cent, Western Europe 41 per cent, Eastern Europe 31 per cent, Latin America 29 per cent, Middle East 27 per cent, Australia, Japan and Korea 25 per cent and Africa 19 per cent.

Among the issues identified as the most risky in China, India and South East Asia were questionable business practices as well as problems with the local intellectual property regime and insufficient financial recourse against sellers.

The report stated: “While intellectual property risks, especially in China, are widely acknowledged, the report makes clear that the opening up of the economy in other sectors raises new concerns, especially around the environment.

“The Chinese government has introduced a raft of measures designed to improve environmental quality. While the degree of environmental litigation and statutory enforcement in China still lags well behind North America and Europe, companies need to be aware of the increased regulatory scrutiny of their operations and the stricter enforcement of environmental legislation.”

Commenting on the findings, Mercer and Kroll’s private equity and M&A practise global head Karen Beldy Torborg said: “Despite the perceived risks of investing in this region, the level of M&A activity in recent years suggests that the expected reward is much stronger.

“We are witnessing a fundamental shift of the global business landscape, and companies all around the world are eyeing the potential of these countries and ramping up their investment and presence accordingly.”

Global head of Mercer's M&A consulting business Bob Bundy added. “Human capital-related risks are often magnified in cross-border M&A, and must be taken into account in every phase of the deal process”,

“Given how much is at stake and how difficult and complex it can be to turn two organisations that come from different geographies and cultures into one, forgetting that business is at the end of the day a human activity can prove costly indeed.”

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