The macroeconomics of merger and acquisition attraction in the developing world

Abstract

Mergers and acquisitions form the majority of FDI deals in the developed world, but remain relatively scarce as a mode of entry in the developing world. The purpose of this research was to investigate the macroeconomic profile of developing countries which attract greater M&A activity in the developing world. The extant literature served as a guide in assembling a list of predictor variables as proxies for macroeconomic factors identified as being drivers of M&A as an entry mode of choice. In order to isolate the significant macroeconomic factors influencing M&A as a mode of entry, two statistical analyses were employed, namely cluster analysis and principal component analysis. These methodologies enabled first a meaningful separation of the country data in order to overcome the effects of high variance and clustering identified in exploratory scatterplots and second allowed for the identification of regional and country effects in M&A activity. The study distinguished several variables relating to the market potential, institutional, infrastructural and sectoral structure of an economy as being significant in M&A activity at a regional level. At the country level of M&A attraction the significant findings were more specific. The presence of a democracy proxied by the variable voice and accountability, a decreased dependency on mining resources as a percentage of GDP and the sectoral make-up and level of diversification of a country were found to influence the attraction of M&A’s. The complex and broad nature of this paper has the intention of creating a platform from which several more specific studies on M&A attraction in developing economies may be launched. Copyright