How to Manage International M&A Deals

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So you found a target company outside your country, and you want to do a deal! If the acquisition fits your overall strategy, there is nothing wrong with cross-border deals.?

However, international deals come along with their own unique set of challenges. Even if you are a seasoned M&A practitioner, there are a lot of complexities in doing cross-border deals.

Why do companies do international M&A deals?

One of the fastest ways to grow an existing company is through M&A. If done correctly, it can transform a business overnight. But why do companies look beyond their own borders? Aside from the benefits of domestic M&A, here are some special advantages cross-border deals can offer:

1. Entering an international market

Entering a new market is always a challenge and entering a new international market can be even harder. Some companies start with acquiring a company within a target country, even if it's just a subsidiary. This is a great way to acquire new customers and create growth.

2. Access to a skilled labor force

Employees in other countries have different types of skills. If looking to tap into different skill sets, then international M&A should be considered.?

3. Portfolio Diversification?

According to a Deloitte survey, one of the top strategic deal objectives of doing cross-border deals is portfolio diversification, which can help expand the range of products or services, and in turn, market share.?

4. Tax advantages

Some governments offer tax reductions following a merger or an acquisition. Among these countries is Singapore. Acquiring a smaller existing company in Singapore can attract a substantial tax advantage.?????

Challenges

Cross-border deals also come with unique obstacles. The key is to be informed and well-prepared before starting your first international deal.

1. Language Barrier?

The language barrier between two companies is probably the most obvious obstacle in an international deal.?

For example, a target company may not understand English. Therefore, every document you will receive will be in a foreign language and will need to be translated to English. Any questions or edits will also need to translated back into the target company's language. This process alone can double the transaction's duration and increase costs.

Speaking of costs, you may need to hire a translator to be able to negotiate properly and speak with the target company during diligence.?

2. Compliance Issues

Tax laws are different in other countries compared to the US. Not to mention that other countries have more cases of non-compliance and tax avoidance. The legal and tax teams will have to perform detailed due diligence to protect buyers.?

Furthermore, different countries have different views on briberies and kickbacks. To some, this practice is common and not illegal. But in the US, the Foreign Corrupt Practices Act will hold buyers accountable for buying an entity with such activities.

3. Employee Rights

Employee rules and regulations are vary country to country. Many countries make it nearly impossible to fire long-term employees and local labor laws may also impact or regulate employee work hours and benefits including overtime, vacation, and severance.?

For example, in Japan they have a life-employment tradition. Although there is no formal contract, it is understood that employees will stay there until retirement. Another example is in Germany, labor unions play a large role. Union collective bargaining agreements typically define employee wages, work, and termination conditions. In other countries, employees have rights to statutory redundancy payments, calculated based on years of service, payable upon voluntary or involuntary termination.??

4. Policies

Company policies are also very different in other countries. In Europe for instance, it's very common for management teams to have automobiles, which is not the same in the US.

In India, it's very common for businesses to employ relatives. If your company has a policy against nepotism, that could also be a problem.????

5. Culture

Culture is probably the biggest barrier in international deals, including the standard communication style.?

Some countries are a bit more straightforward, which could be deemed rude in other countries. The formality of interaction will vary greatly, and can make negotiations more challenging, especially if everything is communciated through an interpreter.?

Also, how you co-mingle with owners to gain trust will be highly different. For Asian countries, the “dating” process takes a lot longer. Sometimes, two to three meetings are required before transaction discusses can begin.

Remember when you're buying a company, you're not just buying their P&L, you're also buying their culture, values, processes, and everything else.?

6. Integration Issues

Who will run the company post-close? If a business is left a standalone, then integration can be easier, but achieving synergies can be harder.?

Fully integrating an acquired company can be tricky. Find someone willing to go abroad and run the company. Plus, this person needs to be able to speak the language or at least have a good interpreter working beside him/her.??

Depending on the integration plan and the target country, integration costs can be more expensive.

Tips

Despite challenges, there are many things that can make an international deal run smoother. Like every other deal, be prepared before committing to such an undertaking.?

1. Learn everything you can about the target country?

The first to do is learn everything you can about the target company. What are the tax laws, employment rules, current political conflicts, and everything in-between. Find out if this is a good country to invest in and whether the product will have a market.?

Also, learn the traditions and beliefs. A huge part of M&A is creating relationships and trust with the target company, so when going about business in another country, you have a good understanding of the do's and don'ts.?

2. Assemble a good team

As previously stated in this article, international deals have nuances that are not present in local transactions. Building a well-balanced team will help teams get over the finish line when pursuing a cross-border deal.

Start with finding a good translator. Nothing kills a deal more than misunderstanding crucial terms and demands. If a translator misinterprets something the target company said, it could cause unnecessary issues. You need an experienced person that can translate with speed and who has the right level of required politeness.

Also, find good lawyers. With all the legal complexities that were previously mentioned, like tax and FCPA rules, you need a group of lawyers that will be able to detect risks before signing and closing.?

3. Approach with the right mindset

Be sensitive and empathetic about the culture and make it a partnership as much as possible.

If you want to learn more about best practices in executing M&A deals, be sure to visit our website at mascience.com