Emerging mkt cos to buy the most in next 2 yrs: E&Y report

The deteriorating global economy is driving a number of distressed asset sales. The latest survey from Ernst & Young finds emerging economies including India are set to become buyers of corporate assets worldwide. Is there a shift in the mergers & acquisitions (M&A) landscape?

Partner and National Director - Transactions Advisory Services of Ernst & Young India, Ranjan Biswas, said, "A lot of good companies with decent balance sheets see the opportunity of getting assets in a market that they've never been able to get to and at prices which are pretty much — I won't say throwaway but — attractive."

"So given that and given the fact that lot of companies in the emerging markets are actually cash rich and have been able to conserve cash and build on the cash reserves during the boom time that will benefit them in the long run and that's why you see these results as far as the report is concerned," he added.

Here is a verbatim transcript of Ranjan Biswas's exclusive interview on CNBC-TV18. Also watch the accompanying video.Q: The report says that 53 per cent of those who you polled are likely to consider divestment as an option at this point. It further goes on to suggest that the pressure to divest is most evident in the financial sector services. What do you make of that and how is that trend actually going to translate into action in India?A: If you look at the general global meltdown, you will find that the financial sector has actually been hit the hardest, there is over 50 per cent meltdown in the financial sector per se. So, given that there is obviously going to be a domino effect that we are going to feel in India sooner or later. That is what the report is indicating towards as well.Q: Your report also talks about the emerging market opportunity – the report suggests that almost 23 per cent of respondents anticipate the emerging market buyers may actually be main acquirers of assets in the next two years. It is almost double the activity that's happened in the last two years. Are you as optimistic given the fact that India is witnessing a significant slowdown?A: Actually there are two facts, which are quite interesting. One is the one that you mentioned and the other one is the fact that they are going to be more foreign buyers looking at countries like India. But let's just address the one that you talked about. A lot of good companies with decent balance sheets see the opportunity of getting assets in a market that they've never been able to get to and at prices which are pretty much — I won't say throwaway but — attractive. So given that and given the fact that lot of companies in the emerging markets are actually cash rich and have been able to conserve cash and build on the cash reserves during the boom time that will benefit them in the long run and that's why you see these results as far as the report is concerned.Q: The report also says that for the foreseeable future we are going to be in a buyers market. How would you actually see deals being structured differently and how do you see the role of private equity funds and sovereign wealth funds changing?A: The private equity retreat in my view is actually overestimated. There is close to $ 1 trillion globally that have been committed to private equity. Whenever you see this kind of activity, I don't believe we can have private equity far behind. So, I think private equity will continue to play a very robust kind of role as far as this is concerned.

Separately, as far as the sovereign wealth funds are concerned, there the role of sovereign wealth funds needs to be understood. I think you would lots of activity especially out the Middle East. The way we see divestitures happening, the sellers will need to prepare themselves better for buyers. Just doing a financial diligence may not be enough. They might look to do commercial diligence, operational diligence, technology diligence and give them a whole picture of what is available in the company, what are the good parts in the company, what are the contingency plans that the company used to undertake, to be able to successfully divest itself.

So, these are the new paradigms, if I may call it so, in this new buyers market. That is the key. Preparing oneself for divestiture is different. When you are operationally looking at a company, it is very different than when you are looking to sell it. That is what this report is trying to identify. What are the key things that we need to do to prepare ourselves better, to get better value for what we have created? That is what it is all about.