Private equity fails to adapt

Private equity fails to adapt

Published: October 18, 2012

Firms are missing a trick when it comes to due diligence in emerging markets, finds report.

Private equity firms are failing to adapt their due diligence to the risks of investing in emerging markets, according to a new industry survey.

Risk management firm Kroll Advisory Solutions and Mergermarket, which tracks deal data, have grilled 50 private equity firms based in the UK on their approach to emerging markets.

Most agreed that traditional due diligence methods fall short in emerging markets. Common problems cited include difficulties in dealing with the political environment (highlighted by 60% of respondents), lack of transparency (56%) and dealing with bureaucracy (52%). Corruption (46%) and local infrastructure (42%) followed.

Despite these concerns, the survey found that few firms change their due diligence methods accordingly; most take a more detailed approach to legal (100% of respondents), tax (94%) and financial (92%) elements, while fewer focus on the commercial (34%) and reputational (41%).

Respondents believe the BRIC markets and Central and Eastern Europe will present the most opportunities for investment during the next two years.