Although these government funds will continue for some time to invest the bulk of their cash in the West, where most of the world’s economic activity still takes place, sovereign investors are also eyeing the East. Dubai International Capital LLC had sunk more than $1 billion into Asia by late 2007 and announced plans to invest an additional $2.5 billion in India and China — particularly targeting manufacturing, real estate, and finance. It has taken a large stake in the Bank of China and Bank Islam Malaysia Berhad; in India, it’s invested in the real estate developer DLF Ltd. and travel agent and currency exchanger Thomas Cook. Temasek Holdings and the Government of Singapore Investment Corporation announced they would double their combined stake in India’s ICICI Bank Ltd.
The rise of the New Blues and the heightened activity of sovereign funds create several challenges for established M&A players. For one, there is more competition for targets in the developed nations, as the former hunters increasingly become the prey. And perhaps more important, these changes signify that there will be a larger number of experienced and well-heeled competitors in developing nations, some of which boast the world’s fastest-growing economies and capital markets. In other words, the once clubby, distinctly Western M&A environment could get quite a bit more daunting in the next few years, giving longtime corporate buyers a real case of the blues.
Gerald Adolph is a senior partner with Booz & Company in New York. He specializes in mergers and major restructurings.
Justin Pettit is a partner with Booz & Company in New York. He specializes in shareholder value and corporate finance and is the author of Strategic Corporate Finance: Applications in Valuation and Capital Structure (Wiley, 2007).
Also contributing to this article was Michael Sisk.
This article is adapted from Adolph and Pettit’s forthcoming book, Merge Ahead: Mastering the Five Enduring Trends of Artful M&A (McGraw-Hill, 2008).