As companies grow, domestic M&A allows them to access new product ranges, customers, and aids market consolidation. Cross-border M&A is a tactic used to quickly enter new markets globally. Companies wanting to pursue this strategy will need to consider the upside benefit and downside risk of these ventures when compared to greenfield investments. This post covers the risks and rewards of cross-border M&A.
According to OECD data1, global cross-border M&A transactions were up +20% during 2016, the second year of double-digit growth (figure 11). US data shows slightly more growth, up +22% over 2015, increasing from US$345b to US$419b. Interestingly, the number of deals has remained reasonably flat, with deal size driving the growth. This is positive for sellers looking for an international buyer. In our opinion, this is a translation of companies looking internationally for growth, and willing to pay a premium for it. If these trends will continue, and you have been weighing up an international transaction, procrastination may be costly or beneficial, depending what side of the coin you sit.
Firms consider international deals, despite the extra effort involved, due to the substantial benefit it can afford. Benefits come in many forms, which we have listed below, in order of importance:
Like with every strategic decision, the positives must not hide the negatives. Below we outline a few negative factors that must be taken into consideration;
Hindsight is 20:20, and this is no different for post cross-border M&A. Due to the uncertainties that come with international transactions, buyers and sellers are often left feeling like they didn’t act normally. From our experience, buyers and sellers often feel that:
Due to these post-deal blues, we have created a buyer’s guide which outlines what you should do when conducting a cross-border transaction.
We have seen an increasing volume of international capital flows. What is more relevant to this blog is that cross-border M&A is playing an increasingly important role in the world economy. The data suggest companies are balancing the scale in favor of the positive outcomes. Direct foreign investment can help you import needed technology, enter markets otherwise too difficult, scale quickly and gain desired organizational and managerial skills.
When looking into an acquisition in an international market, comprehensive planning and the use of experts and external advisors is fundamental. This is particularly important during the due diligence process, which is more comprehensive than with domestic M&A. Remember, you are exploring the murky waters of global economic and political uncertainty. There is an upside, but not all roads lead to Rome.
1 – Global Forum on International Investment 2017 – OECD, http://www.bing.com/cr?IG=A02CF7B7B8A0434AADE26D47BA073A08&CID=2CAB2B26F139689E3C1A203EF03F69DA&rd=1&h=lL74xpjY74Ypaer-HcmljBWUs_7_JvtAlr-dGkTAWWY&v=1&r=http%3a%2f%2fwww.oecd.org%2finvestment%2fglobalforum%2f2017-GFII-Background-Note-MA-trends.pdf&p=DevEx,5033.1 (last visited Oct 11, 2017).