Overseas M&A deals can prove to be valuable strategic acquisitions. However, as a dealmaker, you should know how to avoid the pitfalls and set yourself up for success. M&A transactions, as a rule, are super complex, with a high failure rate–during negotiations, integration, and even post-sale.
When you’re targeting a cross-border company, several additional factors come into play, including unfamiliar cultures, federal regulations, and regional jurisdictions. Since several entities are involved in the end-to-end process, you’ll deal with multiple risks that can derail negotiations.
You’re also looking at financial considerations and the high cost involved in executing such deals. Not to mention complying with legal requirements, drawing up the paperwork, signing procedures, and managing human resources.
Due diligence, extensive research, and the assistance of expert M&A advisors can help you foresee the potential pitfalls. That’s how you can develop failsafe measures to ensure that the overseas M&A deal moves seamlessly and profitably.
Read ahead for in-depth information about how to navigate the intricacies of cross-border deals to achieve your objectives. Whether capturing new markets or gaining an edge over the competition, meticulous planning can raise your chances of a successful M&A by 33%.
The Ultimate Guide To Pitch Decks
Start By Identifying the Key Stakeholders Before the Overseas M&A
Cross-border M&A transactions typically involve multiple stakeholders and go far beyond the buyer and targeted company. Aside from the government authorities who’ll closely monitor every aspect of the deal, there’s the workforce in both companies. Any transactions you complete will have to factor in their interests and comply with the local labor laws and rights.
Customers, vendors, shareholders, and investors have stakes in the companies and need updates on how the deal affects them. Dealmakers are also accountable to the regulating agencies in both countries, so ensure that you meet all their requirements.
When identifying potential targets for acquisitions, you’ll start building robust relationships with their stakeholders. You can accomplish this by addressing their queries, concerns, and expectations with transparent and relevant information.
Put together a communications team that will send out messages to the stakeholders relaying details of the deal’s progress. You’ll also work with the targeted company’s representatives, legal counsels from both sides, expert consultants, and advisors.
Rely on their advice and expertise on the cultural, legal, and regulatory intricacies to streamline the merger’s execution. That’s how they’ll guide the relationship-building process for your overseas M&A.
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Due diligence is the foremost step in any M&A deal, overseas or within the country. Take your time learning everything you can about the company, starting with its financials, valuation, assets, and synergies. Also, assess the value you can gain by partnering with the company.
Understand the local political, regulatory, legal, taxation, and economic landscape and the targeted company’s operational performance in the ecosystem. Work out whether the two companies are a good fit and if the partnership will help you realize your objectives.
Whether you’re looking for an acqui-hire to acquire Intellectual Property, a market presence in foreign locations, or cost-effective resources. Due diligence will help you avoid the pitfalls and set yourself up for success. Understanding the prospect’s market raises your chances of M&A success by 31%.
That’s because you’ll develop an understanding of the cultural and legal nuances of overseas M&A. As a result, you’ll be in a better position to negotiate a fair price and terms for the acquisition. Don’t overlook liabilities like loans, debt funding, litigations, fines, and non-compliance issues.
Language and Terminology Barriers
Language can be a formidable barrier when negotiating cross-border M&A deals. Dealmakers may use the English language since it is the global medium of business communication. However, don’t overlook the fact that the terminology can vary in different locations.
Always retain the services of expert legal teams when drawing up the agreements and paperwork. Have local counselors on board who are fluent in the language and understand the correct terms to include. This step not only ensures accuracy and precision, but you’ll also avoid potential penalties.
Pay special attention to the foreign governing language, whether it is in English or another language. Simple translations may not be effective and could lead to disputes and controversies because of the differences in interpretation.
Get the advisory panel to draw up a list of potential issues and address them diligently. You’ll avoid costly delays, errors, inaccuracies, and litigation even after the deal is executed. And that’s how to avoid the pitfalls and set yourself up for success.
Keep in mind that in acquisitions or fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
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Legal and Regulatory Considerations
Legal and regulatory compliance is one of the key challenges of overseas M&A. Dealmakers must comply with the relevant regulations from both countries. In some countries, policymakers welcome foreign direct investment, and their laws favor such transactions.
In others, such deals are heavily regulated and may involve several tax implications, which you should consider. Planning for the expected costs and identifying any regulatory issues during the transaction will help with smooth navigation. Make that happen by having legal experts on board.
In addition to laws and regulations pertaining to foreign direct investment, factor in labor laws and anti-trust and anti-corruption laws. You’ll pay all the applicable taxes and investigate their rules for product registration per industry norms, labeling requirements, and certifications.
If you intend to work in highly regulated business verticals, you must understand their rules. These sectors may include financial products, consumer goods, chemicals and pharmaceuticals, and health care. Life sciences is yet another industry that may have strict rules.
Structure the agreements carefully to include aspects like mandatory registrations, acquiring licenses, and engaging local stakeholders. Not getting the taxation and regulatory aspects in place can add to the risk of the merger failing by 47% and 32%, respectively.
Don’t forget to include the labor-related legal nuances of the integration. For instance, some countries have strict laws about downsizing the workforce. You may have to pay steep severance packages when you let people go.
Other locations have laws where the acquirer must continue covering pension packages payable to the retirees of the purchased company.
Currency Conversion and Payment Issues
When negotiating overseas M&A, dealmakers must work out the payment mode–in cash or stock. Most sellers operating in hyper-inflation economies may prefer settlements in the buyer’s currency. Others may request payment in the local currency to comply with currency control laws.
Several considerations come into play here. Depending on the number of entities involved, you could be dealing in multiple currencies, in which case conversion rates matter. If the settlement currency is highly volatile, you’ll face issues with the exchange rate, transaction rate, and translation rate.
The timing and structure of the M&S transaction will dictate the mode of payment, which may include cash. But also a blend of other financial instruments like stock options, forward contracts, and asset exchanges. That’s how you can hedge your exposure to the risk.
However, during overseas M&A negotiations, dealmakers must discuss which options are available in their respective countries. They’ll also work out the appropriate financial instruments along with time zone considerations for making transfers.
If you’re using a global bank for executing the deal, you’ll ensure overlapping bank working hours. If that’s not an option, consider transferring funds to a reliable escrow account or a sale-and-hold model, subject to conditions.
Task the finance department with examining how to navigate the conversion rates so that adequate currency is available when closing. These calculations should factor in the applicable taxes and work out how to minimize the liability.
Also, plan for the accounting and tax return protocols in both countries and jurisdictions. Without this diligent planning and strategic payment structuring, you risk federal fines and penalties. Or the deal may fall through because of financial and payment issues.
Remember, working out the financial details in advance gives your merger deal a 29% higher chance of success.
Closing Formalities and Execution Style
The closing and deal execution protocols vary from country to country, which is why you’ll research how to manage them. For instance, the timeline for exiting, hiring, or relocating members of the board. Or getting approvals from labor councils for the merger.
Different jurisdictions may have rules about accepting electronic signatures or requiring in-person signatures for the agreement to be binding. Or if notarization before a physically present notary is mandatory. Also, determine if affixing authorized seals is acceptable or if actual scripted signatures are needed.
Dispatching documentation to the relevant federal authority and acquiring their approval may be a complex and time-consuming procedure. Prepare for the potential time lags so you can organize the closing of the overseas M&A accordingly.
The transfer of funds from the buyer’s banking or escrow institution to the seller’s accounts may also involve certain protocols. Not following the steps as outlined by the law can result in the authorities not recognizing the deal. Or worse, levying penalties and fines.
Post-Merger Challenges – Inefficient Business Integration
Integrating two distinct companies after a merger is challenging as it is. But, when you’re executing a cross-border M&A, the process becomes all the more complex. That’s because you’re dealing with entirely different cultures, languages, workflows, and operational processes.
Your first step in the right direction is to retain the services of a multifunctional integration team to organize the entire process. Hiring external specialists to manage the nuances of the M&A gives the merger a 26% higher chance of survival.
Using their assistance, you’ll develop a detailed communication and relationship-building strategy. That’s how you’ll build trust and communicate your vision and goals to the stakeholders. Align their interests by establishing a transparent governing structure and outlining each person’s roles and responsibilities.
Be open to accepting criticism and working on resolving any issues. Detailed step-by-step planning helps you stay organized. And extract the most value from the synergies in the overseas M&A deal.
The key to successful integration is open lines of communication between the buyers and the founders exiting their startups. Check out these questions entrepreneurs must ask investors when negotiating the deal.
When you’re entering into billion-dollar deals, the risk of disputes is very real. Acquirers may not want to approach the local courts for resolutions. That’s because juries are likely to be biased toward their home company.
Instead of litigation, you might want to consider alternative routes such as arbitration. However, this option is only viable if the targeted company’s primary assets are located in a country that participates in the United Nations Convention on the Enforcement of Arbitral Awards.
If dealmakers do opt to go for arbitration, select a neutral location that is convenient for both parties. Also, make sure it does not have a track record of overturning arbitral awards. Explore the number of arbitrators who will be hearing the case and their regulations for handling the proceedings.
Most importantly, look into the governing language that should be easy to understand and interpret. That’s how you can ensure a fair and unbiased resolution.
More than just the language, differing cultures, and thought processes are bigger barriers to achieving success in overseas M&A. A simple solution is to have expert local counselors on board who can offer an in-depth understanding of the culture, customs, and traditions.
Confusion and disagreements typically arise from ineffective communication. This pitfall is easily avoided by including bicultural, bilingual, and multinational team members who can help diffuse tensions. Transparency and flexibility can go a long way.
It is understandable for acquirers to follow the workflows and operational processes of their home company. But, infusing a little sensitivity toward incoming employees can ensure compromises that work well for everyone.
Executing Overseas M&A Deals Needs Planning
Ultimately, the success or failure of an overseas M&A depends on several factors since such deals are typically dynamic. The key to navigating the complexities is meticulous planning and adaptability to changing situations.
Dealmakers should keep watch on external and internal facets of the business ecosystem where they work. Alter your strategies and approaches to account for them. Preparing contingency plans to manage the risks and having an exit plan with the minimum losses is a smart move.
If you can execute such a deal efficiently, the surviving company can benefit from access to new markets and rapid growth. You’ll gain that elusive edge over the competition and acquire tangible and intangible assets that will contribute to the long-term success of both companies.
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