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TDE2012: Marchick: Sub-Saharan Africa could be next China

by Baz Hiralal | Published December 1, 2011 at 5:29 PM

Continuing its resource hunt, China remains a force to be reckoned with in global M&A, and the rest of the BRIC nations are ripe for dealmaking. The frontier markets are the next big arena, from Argentina to Vietnam and Turkey to South Africa.

The following panelists weighed in with their views at The Deal Economy 2012:

Edward Braham, Partner/Global Head of Corporate Practice, Freshfields Bruckhaus Deringer
Duncan O'Brien, GE
David M. Marchick, Managing Director, The Carlyle Group
Ravilochan Pola, President & CEO, Kotak Mahindra

The Deal LLC's Editor-at-Large Matt Miller moderated the talk.

Miller stressed that emerging markets no longer are synonymous with just China and India. Marchick replied, "We've been in India and China for more than a decade. The third- and fourth-tier cities in China are where we're focused to invest -- they're growing fast. And we're the first large PE firm investing in Sub-Saharan Africa; it could be the next China." He continued with a little pointer: "You should look to see if people educated here at Harvard or Yale are going back to their home countries, say, Nigeria."

GE's Duncan O'Brien said, "GE has been growing up in the past few years in the emerging markets and is still looking to put better talent on the ground there. We're looking for plug-and-play deals so origination is a challenge."

Miller then moved to regulation. "Are there any new regulatory trends that are worth noting?" Pola focused on India: "Merger control regulations are moving to get deals done quicker, but there's political controversy about taking over mom and pops and other nuances."

Braham thinks after the U.S. developed antitrust it spread all over the world but very few know how to use it.

Miller then asked about mitigating risk going into a deal and if due diligence is key. Marchick says their "strategy has evolved over 20 years. We used to transplant Americans overseas, and now we're hiring people that live there and know the culture -- it's the most important part of due diligence." O'Brien then pointed out that "it's good to have a local partner. However, even though emerging-market governments are striving to be more commercial," there's still a sense that protections are in place.

Toward the session's close, Miller asked about valuations. "A frothy stock market in many emerging markets is just one factor. How do you begin to bridge expectations?" Marchick thinks "multiples are too high" and "you have to believe in the long-term viability of the business. We generally prefer 100% buyouts or majority in control, but in China and India and Sub-Saharan Africa it's tough, so we go with minority investment. In Brazil and Turkey, you can also find majority buys."

There's still more insight on the way, log in to see: http://www.thedeal.com/simulcast.php

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