IN today's corporate environment, transactions in emerging markets are an important part of companies' strategy for staying ahead of the competition.

But deals in emerging markets are not as straightforward as they might seem. There are considerable challenges that will need to be overcome, but yet the lure of vast opportunities and immense potential of these markets has whetted the appetites of most companies and investors nonetheless.

So, if your next transaction happens to be in these territories, knowing the key success factors for transactions in emerging markets at each stage of the transaction cycle may just determine if your next deal will be a winner.

As companies increasingly look to M&A activities in emerging markets to meet their corporate goals, success may come only when expectations are defined and corporate strategy is aligned with local execution.

This is one of the main conclusions of Ernst & Young's Global Transaction Leaders Survey 2007. The survey, based on conversations with more than 300 senior executives from 95 companies across 15 countries, revealed that while 83 per cent of the respondents were looking to emerging markets for strategic transactions, less than a third of proposed emerging market deals are ever completed.

In addition, surprisingly, companies' satisfaction with those deals that are completed is only 68 per cent.

To increase the likelihood of success, companies need to adhere to 'the 5As' of doing successful deals in emerging markets - five linked attributes at each stage of the transaction life cycle.

>> Strategic Analysis: Alignment - Clarity of purpose drives success

When expanding, corporations often look to emerging markets because of "commercial opportunity" and "strategic imperatives". However, results often disappoint because corporate strategy driving expansion in emerging markets is not always aligned with the tactics needed to complete deals on the ground, causing tensions between in-country and headquarters teams, and leading to delays and missed opportunities.

Hence, success in emerging markets is all about alignment of strategic purpose, expectations, deal team, and stakeholders. To promote alignment, leading companies plan strategically, get to know the deal landscape, and visit the locations often.

>> Opportunity Analysis: Alliances - Know the deals and build relationships

Political uncertainty and lack of reliable financial information are the key roadblocks to doing deals in emerging markets and local knowledge is essential to manage these challenges.

To ensure success across the entire deal lifecycle, companies need to develop and maintain alliances with four key groups - government and regulators, target companies, market influencers, and experienced local advisers. To make alliances work, transaction leaders need to build a local talent pool, develop relationships, and leverage on their emerging market business partners.

>> Transaction Development: Awareness - What you don't know will hurt you

Scarce information means that cross-checking of due diligence findings is essential in emerging markets, going well beyond financial numbers to include tax, environmental and operating data. Business plans, risk assumptions, and valuations will need to be constantly reassessed as deal teams build their market awareness from limited information resources.

To foster awareness, transaction leaders develop disciplined standard processes, assign dedicated multi-function deal teams, measures, and apply a detailed due diligence process. To leverage on the information that they have, leading deal teams hire external advisers having local market knowledge, technical competence and sector insights to assist them from the outset.

>> Negotiation & Execution: Adaptability - The "best" deal is the most workable deal

In carrying out transactions in emerging markets, do not expect developed market assumptions regarding written contracts, verbal agreements and win-win situations to apply always. Successful investors are sensitive to cultural differences, however unfamiliar, and know how to accommodate it without losing sight of the essentials.

Adaptability is key to building relationships that form the platform for effective negotiation. In practice, it often means compromise and frequent revision of business plan assumptions during the deal. Adaptability thrives on respect for cultural norms, exhibiting persistence, and creativity.

>> Transaction Effectiveness: Application - Getting it right in the end means getting it right at the start

With rare exceptions, integration is the most challenging part of an emerging market transaction. Successful integration is the result of systematic application of lessons learned from past and ongoing experience.

To apply the lessons, leading companies plan and execute early, implement robust deal-related measurement, communicate constantly, and use continuous improvement to get better with each successive deal. Without a dedicated integration team to bring rigour and realism, business plan synergies will often not be achieved.

Given the challenges posed by the emerging markets, it is prudent to anticipate a longer scouting and courting period before attempting or closing a deal. Remember to keep the five "As" in mind - Alignment, Alliances, Awareness, Adaptability and Application - as you next venture into these territories with promising returns.

The writer is a director of transaction advisory services at Ernst & Young. He can be reached via e-mail at Eric-KH.Teo@sg.ey.com

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