International Mergers and Acquisitions
According to the Institute for Mergers, Acquisitions and Alliances, 49,000 international mergers and acquisitions occurred in 2018 alone with an estimated value of $3.8 trillion. Over a third of the value of these transactions involved U.S. companies.
Deloitte predicts merger and acquisition activity will increase, in both the number of transactions and deal size. Their recent survey indicated 79 percent of companies expect to increase the number of international mergers and acquisitions they’ll close this year. That’s up 9 percent from last year.
Advantages of International Mergers and Acquisitions
International mergers and acquisitions blend company resources, assets and personnel to help a business improve in many ways. The advantages include:
- Increase overall performance efficiency – each company can leverage the others’ strengths and reduce redundancy. Synergy creates opportunities that would not have otherwise been available to the companies operating individually.
- Stimulate growth – the acquiring company not only buys the company, but its client base and market share, without the heavy lifting.
- Gain competitive advantage – an M&A deal may allow a company to buy up the competition or acquire a substantially larger market share for greater competitiveness.
- Strengthen supply chain – a company can effectively cut out the middleman and lower costs when they buy out a supplier. They may also reduce shipping costs when they absorb a distributor.
Mergers vs. Acquisitions
Mergers and acquisitions are usually bundled into one term, but they’re fundamentally very different.
In a merger, one company absorbs the other and it ceases to exist. For instance, the pharmacy chain and benefits manager CVS Health merged with health insurer Aetna. The merger allows CVS to convert itself into a healthcare company and Aetna no longer exists.
In an acquisition, one company obtains a majority stake in another company, through a cash sale, shares, or equity. However, the target business retains its name and legal structure.
As an example, the Meredith Corporation acquired Time, Inc. in to increase their readership, monthly unique visitors to their website, and expand their reach and paid circulation. Time, Inc. still operates under its business name.
Complexities of Buying a Foreign Company
Buying a company is always a complicated matter, but especially when that company is in a foreign country.
Buyers need to consider the cash, stock, or payable note mix they’ll offer the seller and fluctuating currencies can negatively impact a purchase when handled improperly.
Mergers and acquisition also require regulatory compliance in the host and seller’s countries. Legislation often varies drastically between the two and non-compliance can have negative impacts. These include damaging a business’ reputation, consuming time and resources and even killing a deal.
The accounting considerations of a merger or acquisition are equally daunting, especially when purchasing equipment, property or stocks. Depreciation, amortization, goodwill and of course taxes all come into play.
International Mergers and Acquisitions Due Diligence
Any company that is considering buying a foreign company or merging with a foreign company needs to undertake an extensive due diligence process. The old adage “buyer beware” has never been more apt.
Before committing to the transaction, your company needs to know precisely what it is buying. This not only includes its attractive assets, but also the obligations, risks, liabilities and contracts your business will assume. This is especially true when buying a private company whose operations and financials have not been scrutinized by outside parties.
Unfortunately, mergers and acquisitions may lead to litigation when the buyer does not conduct careful due diligence. Issues such as incomplete or inaccurate financial statements, employment law violations and intellectual, data or cybersecurity issues can come back to haunt the buyer.
Many M&As Fail, Unnecessarily
Regrettably, many mergers and acquisitions fail unnecessarily. According to A Comprehensive Guide to Mergers & Acquisitions, most failures are usually due to:
- Lack of planning
- Lack of knowledge
- Cultural, managerial and organizational differences
- Negotiation errors
- Improper integration approach
- Limited synergies
Diving into such complicated transactions without proper planning is an avoidable mistake. Companies can closely analyze what they need to improve their business and then plot the path to achieve it. However, trying to do so without assistance may not be a wise decision.
Gaining the knowledge needed for a successful merger or acquisition is equally attainable, but seldom executed. You can buy a business, but is it the right business, in the right location, at the right time? That takes in-depth knowledge. However, it is achievable with the help of a seasoned mergers and acquisitions leader.
Understanding potential cultural, managerial and organizational differences in the host country is difficult to achieve, unless you work with an in-country expert. They already operate in the region, understand potential issues and can help you avoid common problems.
Approaching international mergers and acquisitions without prior experience is brave, but ill-advisable. There are far too many variables and working with business owners abroad is often much different than in your own country.
Negotiating for the best possible terms is also vital to success. However, it is more difficult to do so when cultural norms and legal responsibilities vary so greatly. Unless your business thoroughly understands what’s involved in brokering a deal, you may over-pay.
It is important your company carefully analyses whether the purchase is worth it or not. If the combined value and performance of the two companies is not greater than the sum of the two parts, you’ll waste time and money.
Even if your business successfully closes the deal, you need to understand the best possible way to integrate the two to reach your business goals. Mergers and acquisitions entail many costs that can easily exceed benefits if the integration isn’t well-planned.
Luckily, all of these problems are avoidable.
International Mergers & Acquisitions Expert
Successfully navigating the purchase of a foreign company requires expertise. It is an intimidating process without a skilled partner that thoroughly understands the intricacies and dynamics of global business.
While international mergers and acquisitions might be challenging, they can also be very lucrative. Fortunately, companies can overcome the legal, business, financial and human resource challenges with an experienced partner. Blueback Global can guide you through all stages of a merger or acquisition.
We regularly broker international deals and have a global footprint, including a team of experts in countless countries. We can help your business identify opportunities, avoid shortcomings, and buy the right business.
Let us help you develop a strategy, screen potential companies and conduct due diligence. Our analysis can help you decide whether the company is worth your investment.
Contact us for a free consultation and cut through the complications of international mergers and acquisitions. Your business can expand into the international market more quickly and effectively than you might think.