Europe's leading companies are so threatened by competition from aggressive and multiplying private-equity firms that they need to mimic the firms' approach.
This is the finding of a recent survey by Ernst & Young, which questioned those responsible for corporate development strategy at 92 leading companies in western Europe.
Companies in emerging Europe, along with other emerging markets such as China, top their acquisition target lists.
"Emerging markets – India, Russia and the rest of eastern Europe as well as China – seem set to absorb an increasing amount of energy in the next few years," the report says.
Increasingly onerous regulatory environments in developed markets are one cause of this. "While some emerging markets are undergoing wrenching structural change, for long-term strategic reasons as well as for short-term growth, many companies are now saying that investing there is now a matter of 'when' not 'if'," the report says.
Companies may be right to fear the competition from private-equity houses – there are now nearly 7,000 groups worldwide, and they accounted for 15% of global M&A activity, worth $294 billion, in 2004.
Advantages that companies believe private-equity houses hold over them include: speed; lower cost of capital; less requirement to plan for the longer term; no need to integrate assets into their existing businesses; and more objective due diligence.