The macroeconomics of merger and acquisition attraction in the developing world

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. Thepurpose of this research was to investigate the macroeconomic profile ofdeveloping countries which attract greater M&A activity in the developing world.The extant literature served as a guide in assembling a list of predictor variablesas proxies for macroeconomic factors identified as being drivers of M&A as anentry mode of choice. In order to isolate the significant macroeconomic factorsinfluencing 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 orderto overcome the effects of high variance and clustering identified in exploratoryscatterplots and second allowed for the identification of regional and countryeffects in M&A activity. The study distinguished several variables relating to themarket potential, institutional, infrastructural and sectoral structure of aneconomy 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 decreaseddependency 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&As. The complex and broad nature of this paper has theintention of creating a platform from which several more specific studies onM&A attraction in developing economies may be launched. Copyright © 2008, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. Please cite as follows: Ismail, T 2008, The macroeconomics of merger and acquisition attraction in the developing world, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03122010-150417/ > G10/24/mh