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Managing the Market Risks of Acquisitions in Emerging Countries

by François Masquelier, RTL Group Head of Treasury, Corporate Finance & ERM, and Honorary Chairman EACT

Acquisitions in emerging countries are never easy for numerous reasons. For example, the acquirer has to overcome local legal issues which can sometimes be extremely complex given the absence of written rules and procedures, compared with Western Europe. Moreover, the group acquirer could also face political issues. It often has to satisfy irrational constraints with which it is not always familiar. Having said that, we would like to underline other types of difficulty and risks it could encounter in investing in such countries with highly volatile currencies, high interest rates and inflation in parallel with over-performing growth.

These issues very often oblige investors to organize their funding in a stronger currency with lower interest rates. However, it also confronts them with foreign exchange risks. These are the types of problems the acquirer will have to solve. By using different leverages and mixing products, it will be in position to optimize return on assets purchased. The financial issues are pre- and post-acquisition.