Merging with or acquiring a company is a complicated prospect under the most basic of circumstances, but it offers a wide variety of potential advantages. Cross-border M&As can help businesses to gain access to new markets or meet the challenges of a modern world, but they often require additional work to execute. Wondering, “What is a cross-border M&A?” Need to know how this type of business deal can create advantages and opportunities? This guide reveals the key considerations that companies must consider when evaluating cross-border M&As.
What Is a Cross-Border M&A?
Cross-border mergers and acquisitions start with companies in two countries that want to combine assets. A merger involves two businesses becoming one new company. By comparison, an acquisition involves one company acquiring the assets of a smaller company, with the smaller company assumed entirely into the larger one. M&A trends show that businesses see these deals as a way to improve their own viability. With the increasing globalization of production, collaboration and communication, cross-border M&As continue to grow in relevance. Statista noted that cross-border deals increased from less than 500 worldwide in 1985 to almost 8,500 in 2023.
Key Considerations in Cross-Border M&As
With so much potential, businesses may be eager to gain the advantages of a cross-border M&A. Although these deals present a number of benefits, companies should understand the complications involved in the process. These considerations may require significant investment of time and research to determine the advantage of any deal.
Regulatory and legal compliance
Companies must follow the laws and regulations of both locations to complete cross-border M&A transactions successfully. Countries have unique laws concerning the types of deals they will accept, as well as requirements for companies in industries of strategic or national importance. Additionally, companies must research the local and national regulations for the deal, as well as formation, operation or dissolution in each country.
Cultural differences
Turning two companies into one presents new challenges from a cultural perspective. Even mergers and acquisitions between countries with the same dominant language can present difficulties when considering culture, history, labor laws, and more. These differences are not always easy to see, which highlights the importance of organizations investing time into cultural research as part of a M&A due diligence checklist.
Tax implications
Taxes create plenty of complication for any business deal, particularly those involving multiple tax structures. Businesses do not just have to understand the general tax structure of the resident country for the target company for the merger or acquisition. They must also consider local taxation, the existence of double tax treaties and more. Investigating these concerns can help businesses to determine if the deal presents tax advantages or greater liabilities.
Currency risk management
A cross-border M&A usually involves an exchange across currencies, which can highlight possible volatility in the strength of currencies. Currencies change in value over time, with weak currencies consistently losing or holding lower value compared to stronger currencies. Businesses must evaluate the effects of currency fluctuation, as well as exchange rates, on the viability of the deal and the potential of continuing business in that country.
Due diligence
Before deciding on cross-border M&A transactions, businesses must perform due diligence to assess the wisdom of the deal. Companies have their own goals and expectations from the transaction, which can be significantly affected by the laws, regulations and economic conditions of the organization’s country. Investigating each aspect of the merger or the acquisition can increase the likelihood of success for the deal, while identifying potential risks and liabilities.
Integration challenges
Once the deal is complete, the plans for integration become vital to the success of the new venture. Companies may struggle to overcome challenges related to location, distance and other obstacles to production and communication. Creating a detailed guide to integrate operations, technology, and culture can give businesses a clear path to a successful future.
Q&A Workflows
During cross-border deals, it’s important to comply with all the various laws in different jurisdictions that pertain to what is considered “disclosed” during the transaction. A Q&A workflow integrated into a virtual data room platform ensures disclosures occur within the confines of a secure, protected venue. It also can record and audit all questions and answers within the VDR archive.
Regulatory and Legal Considerations
Failing to prepare for different regulations and laws has the potential to sour a cross-border M&A or hinder the business’s operation after integration. Countries and local governments set regulations on the forming, organization, and running of companies. Businesses should know the regulatory bodies providing oversight for the transaction or future business. They also must learn how to establish compliance with local laws, especially those governing the creation of trusts or the merging of competition. In most cases, hiring local legal experts to evaluate the deal for possible complications can provide a significant benefit.
Managing Financial Risks
Most business deals involve a degree of financial risk, and cross border M&As may present a greater variety of potential obstacles. Companies can create a detailed picture of the risks they might take by:
- Evaluating the currencies of each country and hedging the decision to the one with the most advantages
- Designing a deal that provides the most tax incentives, while minimizing dramatic tax increases or double taxation
- Assessing the financial condition of the target company as part of the financial due diligence process
Greater investment in the development of a plan can reduce the likelihood of unexpected liabilities.
Cultural Due Diligence
Culture dictates much about a business, from its primary offering to its hours, overhead and management style. Businesses overlook these considerations to their detriment, especially if the M&A involves integration of organizations in very different cultures. To minimize these challenges, companies can:
- Work to overcome language barriers and other communication concerns
- Learn more about the culture of the organization, including work styles and operating presumptions
- Build trust within the organization, so that employees are more likely to work together to achieve a common goal
Performing cultural due diligence can also help companies to avoid M&As that present too many cultural barriers.
Post-Merger Integration
Integrating the companies into one smooth system often requires more work than the initial investment in the deal. Integration happens across platforms, involving the following:
- Operations: Putting operations for both organizations in alignment with opportunities for transition
- Culture: Merging the corporate culture to help manage expectations and provide for efficient collaboration
- Technology: Keeping each system operational while creating a path to integrate IT departments and technology needs
A reasonable post-M&A integration may take months to execute, especially for larger companies or complicated deals. M&A software can help businesses to identify their needs and goals, providing for a smoother transition.
Examples of Cross-Border M&As
Cross border M&As range in size, from thousands to billions of dollars. Statista documents the largest examples of cross-border mergers and acquisitions in recent years, including:
- Anheuser Busch InBev and SABmiller: This acquisition involved a $104 billion deal between the Belgian-Brazilian company Anheuser Busch InBev and the UK-South African brewing and beverage company SABmiller. By acquiring the company, Anheuser Busch InBev could increase opportunities in markets such as South Africa.
- Bayer and Monsanto: The $63 billion acquisition of genetically modified seed company Monsanto by pharmaceutical and chemical company Bayer offered benefits for future development. Many other companies were merging in the agricultural science space, leading Bayer to take this path to increasing their dominance in the agricultural and chemical sectors.
Large M&As can help corporations maintain relevance and industry dominance in a global market.
The increase in cross-border M&As highlights the transition to a global marketplace. Companies look for ways that they can access new markets for their services without having to compromise on their existing stability and momentum. While a cross-border M&A presents several risks, many businesses determine that the advantages outweigh the work and risk involved. By keeping these factors in mind during the planning and execution of the deal, companies can reduce negative effects, increase benefits and better ensure an efficient integration.
