R&C: Reflecting on the last 12 months or so, how would you describe the level of cross-border M&A activity involving emerging markets? To what extent are you seeing appetite for deals across these regions?

Vázquez: Inbound and outbound dynamics in emerging markets will strongly depend on the economic reality and political context of the country. If we look at statistics for Asia, inbound activity has increased significantly, compared to 2016, as European and US buyers keep investing in Asia’s industrial fabric. Outbound activity, however, seems to have been strongly penalised, with increased outflow capital controls implemented by the Chinese government in order to encourage domestic investment. However, Chinese companies remain thirsty for foreign strategic resources, technology, know-how and brands, and are subsequently reaching out to new markets for further expansion. From a warranty & indemnity insurance (W&I) perspective, we have seen a healthy flow of Japanese outbound transactions as Japanese buyers become more familiar with this solution. On the contrary, the usage of W&I in Asia is dominated by international private equity (PE) or other financial investors seeking a clean exit, as well as international bidders enhancing their competitive offers by utilising W&I policies as an alternative form of security to the more traditional escrow or hold-back of purchase price.

Oct-Dec 2018 Issue

Tokio Marine HCC