The world economy’s appetite for cross-border mergers and acquisitions continues to grow in popularity amid globalization and the emergence of new technologies. These types of global deals offer their fair share of risks and rewards. So how do you know if it’s the right strategy for your company? While there is no magical equation to answer that question, you can take the time to understand what you will be faced with in a cross-border transaction, how it may make sense for your particular business within your sector, and what precautions you will need to take.
Motivations for Cross-Border M&A
There are several different reasons that business leaders turn to cross-border deals to address their needs and benefit their companies. These objectives include:
- Diversification of portfolios
- More favorable regulations
- Cost synergies
- Scale efficiencies
- Acquisition of intellectual property
- Access to new talent
- Expanding distribution networks
- Increased production capacity
- Adding new technology
- Rapid growth into new geographic markets
- Tax benefits
Assessing the Risks
The due diligence process in any M&A transaction can be arduous and it certainly can become more complicated in cross-border deals. In weighing the risks and benefits, special considerations include:
- National and regional tax laws
- Security and anti-trust regulatory considerations
- Additional industry regulations and approvals
- Industry-relevant product registration and certification requirements
- The political stability of the country and its leadership
- Legal entity structures
- The target company’s compliance with specific laws and regulations designed to prevent criminal activity such as bribery or money laundering
- Labor issues, unions, retention of key talent, and integration concerns
- Cultural synergies
- Any other business risk factors unique to the country
To ensure that you are covering all your bases and protecting your interests, it is best to work with an experienced cross-border M&A deal team that knows the ins and outs of these regional issues and transaction intricacies. Adequate planning is critical to the outcome of the transaction and it is not uncommon for company leaders to look back on their cross-border deal and say that they wished they had planned more in-depth, negotiated more aggressively, and did more research on the target company’s potential.
What About the Pandemic?
The COVID-19 pandemic has understandably had an impact on cross-border deal activity and international trade. Many transactions have been postponed or cancelled since the beginning of the crisis. Potential acquirers are saving their cash and focusing on their existing portfolio companies, and potential sellers are concerned with financial certainties and asset valuations. Yet, M&A activity is still taking place, and the impact is being felt differently in different sectors. Certain buyers are in a strong position to take over lower value targets. Certain sectors, such as medical technology and life sciences, are relatively strong amid the crisis. How this continues to play out through 2020 will depend on the spread of the virus and the development and availability of a vaccine. Travel restrictions and social distancing efforts can make it challenging to coordinate meetings across borders and can also create supply chain issues. While virtual meetings are increasingly common and effective, they may be difficult for onsite due diligence efforts such as inspections and workplace tours during a time when many workforces are working from home.
As a business owner looking to sell, you will want to take special precautions to ensure that you are not being taken advantage of during these difficult times, as the pandemic crisis presents an opportunity for buyers to try to negotiate down the purchase price of a company. You should also be looking closely and carefully in due diligence at the buyer’s cash positions and certainty of funds to mitigate the chances of their withdrawal in later stages of negotiations. Your agreement may need to include special epidemics and quarantine clauses such as a force majeure provision, or a material adverse change (MAC) clause, as well as certain warranties, representations, and indemnities.
Thinking About Making a Move?
If you are seeking strategies for selling or growing your company, our team of global M&A advisors at Benchmark International would love to hear from you. We have vast experience with cross-border deals and can help you navigate the process with peace of mind. Let’s explore the possibilities for your future.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.