Navigating the Complexities of Dealmaking and Private Transactions in Emerging Markets

Emerging markets typically face a paradox: On one side, their economic conditions are ideal to foster business’s growth; on the other, they lack the financial infrastructure to fund that growth domestically. While the underlying causes of this issue require attention from governments, the private sector, and international organizations, cross-border financial advisors such as investment bankers and asset managers can act as intermediaries between investors and companies in emerging markets to close that gap. Dealmaking in emerging economies, however, requires navigating complex environments with both challenges and opportunities for international investors.

Growth potential and limited capital markets development

The dynamism of emerging economies is fueled by their growing populations, expanding middle classes, and increasing foreign direct investment. According to the International Monetary Fund (IMF), the top 20 emerging markets contribute 34 percent of the world’s gross domestic product (GDP) and 46 percent in purchasing-power parity, while the market capitalization of the MSCI Emerging Markets Index is currently valued at $7.6 trillion.

As companies in these markets look to expand operations, their economies lack robust stock exchanges, liquid debt markets, or the regulatory certainty to carry out these transactions at a competitive cost of capital. Though countries like Brazil and India have more developed markets than those like Nigeria and Vietnam, businesses in all these countries are pushed to find funding in developed economies such as the United States.

Legal reform and public-private collaboration could help remedy this over the long term, but in the short term, investment banks can provide highly specialized advisory services and global capital markets connections to facilitate these transactions. However, investors have mixed sentiments about emerging markets depending on their understanding of local financial systems, cultural nuances, and regulatory environments.

Navigating private emerging markets deals

In emerging markets, private transactions dominate the deal landscape, and boutique investment banks—typically focused in the mid- and low-middle-market transaction size—act as the designated financial advisors. Executing private deals in these jurisdictions is a complex task, and due diligence can be particularly challenging due to factors like opaque financial records, lack of standardized reporting, and potential political or legal risks. For example, in certain African markets, land ownership and resource rights may be poorly documented, creating ambiguities in valuations for infrastructure or agriculture-related deals. Similarly, in parts of Asia, informal business practices and family-owned structures dominate, requiring delicate negotiation and relationship-building. Even with rigorous due diligence that covers financial audits, legal compliance checks, and on-the-ground assessments, transactions are not guaranteed to succeed; however, it is essential for the success and continuity of a boutique investment bank.

The role of international organizations

Dealmaking in emerging markets is also tied to collaboration with multilateral organizations and development finance institutions (DFIs)—like the World Bank and the International Finance Corp.—and regional entities such as the African Development Bank and the Inter-American Development Bank (IDB). These organizations not only provide funding but also help mitigate investment risks in volatile markets.

Investors and financial advisors often create mutually beneficial arrangements with these entities to expand capabilities and mitigate risks. For example, by partnering with DFIs, firms can gain access to concessional financing, technical expertise, and risk-sharing mechanisms, which enable them to undertake larger and more complex deals. Furthermore, working with international organizations lends credibility to transactions, making them more attractive to global investors.

Complex financial transactions such as mergers and acquisitions and capital raising in emerging markets present opportunities and challenges for investors and investees. The growth potential of these markets, though hampered by structural issues, can provide attractive returns and diversification alternatives, as well as abundant activity for cross-border financial advisors, and meet the funding needs of growing companies. While navigating private deals requires advisors to master local dynamics, international organizations play a fundamental role in reducing the risk of these investments, ultimately contributing to the development of the private sector in emerging economies.

About the author

Pedro De La Rosa is an MBA student and an Emerging Markets Institute Fellow in the Samuel Curtis Johnson Graduate School of Management. Passionate about finance and development, he was an investment banking summer associate with New York Bay Capital, focusing on capital raising for private transactions in Latin America. Before coming to the Johnson School, De La Rosa was the senior economist at the Embassy of Mexico in Washington, D.C., where he promoted foreign direct investment and aligned incentives for cross-border supply chains between the U.S. and Mexico.