Crossing borders: Volume of cross-border deals is on the rise

Challenges facing cross-border deals

While cross-border deals are on the rise, they are presented with significant challenges. Heightened geopolitical tensions, a string of major elections, ever-evolving regulatory landscapes, and the ongoing threat of economic uncertainty are hurdles dealmakers must overcome.
When asked how the wave of elections across the globe in 2024 will affect deal activity, Hemand Shad, Partner at Jones Day observed, "It's had a significant effect on dealmaking generally, especially on cross-border transactions. We've seen a moderation of activity from certain countries, and strategic alliances between nations are becoming more pronounced and defined. 

“There's a new level of scrutiny applied to these deals as people determine what they should do. With that said, we’re reaching a point where people don’t want to wait out the period of risk, and they’re increasing their tolerance for international and geopolitical uncertainty. They’re willing to do it. 

“As much as the current geopolitical climate is a deterrent for doing deals, it’s also attractive for the right deals. Where dealmakers can find commercial alignment with a strategic ally, we see meaningful opportunities," Hemang adds. 

Key drivers of the cross-border M&A surge

Technological advancements

Technological advancements, particularly in areas like artificial intelligence, biotechnology, and renewable energy, are driving demand for specialized skills and intellectual property, often found in foreign markets.

"Australia has a lot going for it right now, particularly in the technology sector," highlights Mark Calvetti, Head of Corporate Finance at William Buck. "We’ve been a really good hunting ground for players in the US and Europe who’ve bought or partnered with Australian companies.” 

"In a similar vein, healthcare and particularly med-tech will see that cross-border M&A growth," continues Mark. "If you look at demographics, across the world you’ve got an ageing population and you’ve got new technologies. I foresee there will be more growth and activity in the biotech and med-tech spaces.” 

Acquiring critical technologies

Cross-border M&A can also be a powerful tool for companies to acquire critical technologies, expand their product offerings, and gain a competitive edge in global markets through strategic acquisitions.

"Over recent years we have seen US and European buyers account for the majority (around 80%) of Australian M&A transactions with an overseas buyer and Asian buyers represent around 15% of deal flow," explains Holly Stiles, Partner and National Head of Corporate Finance at Grant Thornton. 

"One key driver for this interest from overseas buyers is the opportunity to acquire technology and IP that can be leveraged in much bigger markets overseas. Australia is also seen as a safe and resilient economy and an ideal launching point into Asia."

The hurdles of cross-border success

While the potential rewards of cross-border M&A are significant, these deals also present a unique set of challenges. Escalating geopolitical tensions between major powers are creating uncertainty and increasing scrutiny of foreign investment are leading governments to implement stricter regulations to protect national security interests. This can result in longer approval times and increased scrutiny of deals in sensitive sectors, particularly in countries like Australia and the United States. 

Navigating this complex web of regulations in different jurisdictions, including complying with foreign investment regulations, antitrust laws, and data privacy laws, can be time-consuming and costly. 

On top of this, cultural differences and language barriers have the potential to significantly impact the success of cross-border M&A deals, making understanding these differences crucial for effective communication, negotiation, and integration. 

The use of AI technology can significantly mitigate these challenges through document translation, allowing for rapid and accurate communication across languages and cultures, enabling faster regulatory filings and smoother negotiations.

Growth areas in cross-border M&A

Europe

European companies are increasingly looking for growth cross-border opportunities outside their region. According to ARC Group, many European firms are targeting safer markets, particularly the United States. Their data suggests in 2023, cross-border deals accounted for a substantial 42% of total deal volume, highlighting the strong desire among European acquirers and investors to expand geographically and diversify their sectors.

Interestingly, the robotics industry appears to be a key driver or activity in Europe, according to Mergermarket data. Advancements in AI and machine learning are making robotics technology more accessible and financially viable. As the robotics industry matures, companies are scaling their operations. This makes them a more attractive and less risky investment proposition. Total deal volume in the robotics market reached €451 million in 2024, a 30% rise compared to €348 million in the same period of 2023. 

A prime example of this trend is the Czech Republic-based e-commerce firm Rohlik Group. In June 2024, they raised approximately €158.8 million in a funding round led by the European Bank for Reconstruction and Development. Rohlik Group, an online supermarket utilizing robotics for fully automated fulfillment centers, aims to achieve over €1 billion in revenue with positive cash flow in the 2024 financial year.

In July 2024, Italian car manufacturer Stellantis agreed to sell a majority stake in Comau, its industrial automation and advanced robotics specialist, to One Equity Partners. 

Mergermarket data also suggests the mid-cap dealmaking landscape in China-Europe cross-border transactions could see a dynamic rebound off the back of Donald Trump’s return to office in the US, coupled with China’s incentive package and relaxation policies. 

“The upcoming Trump administration’s protectionist trade posture and transactional approach to the rest of the world could weaken the US long-term prominent role on the global stage, which will turn out to be a good opportunity for China in terms of mutual investment with Europe”, said Yang Yang, Managing Director at Firstlight Capital. 

“It’s potentially a great opportunity for the EU bloc to take a new role to do business, given many European countries, such as France, take a neutral stance and make friends with China,” added Alban Neveux, CEO at Advention.

“Approximately 95% of M&A transactions are mid-cap deals, which are welcomed in both China and Europe, as they are subject to few regulatory restrictions.” Yang noted.

Middle East

"Meanwhile in Asia, particularly China, investment has gone to [the] Middle East, it’s gone to Africa, and it’s gone to South America in most recent years," explains David Friedlander, Australian Chair and Partner at King & Wood Mellesons.

 "The biggest beneficiaries of Chinese outbound investment have been those three places. If you think about geographies where once Chinese investment was strong into Australia, US, Europe, instead it’s really going into the middle of the world. 

“That’s very much been because of the Belt and Road Initiative, the development of infrastructure in those countries and partnering with a number of them in the way in which infrastructure is brought about and developed in those jurisdictions."

"For cross-border deal flow in FY25, I’d love to be qualified in Saudi Arabia," concludes David Friedlander. "That place is on fire and you’ll see more inbound M&A there than you could have ever imagined a few years back. 

“Places that have no energy resources or a weak tech industry – and those embroiled in geopolitics – will be at the other end of the scale. You won’t see a wad of deals into Central Europe, Mexico or other parts of the Middle East as a result."

India 

"The really interesting jurisdiction is India," states Kate Koidl, Partner at MinterEllison. 

"Its economy is poised for significant growth, potentially overtaking Japan as the world’s fourth-largest economy by 2025, according to the IMF. So India’s growth trajectory will probably be ahead of what was expected."

Japan

According to Mergermarket, Japan’s outbound M&A in the year to date (September 2024) has seen deal volume spike 36% to USD 44.98bn from the same period last year. By contrast, deal count has fallen to its lowest level since 2010, with only 295 transactions inked.

In September alone, a number of companies have said they are keen to grow via overseas acquisitions and investments. These include Yokohama Rubber, which is considering additional favorable targets following the takeover of Ohio-based Goodyear Tire & Rubber’s off-road tire business.

Embracing the future of AI-powered cross-border deals

The future of cross-border M&A will be profoundly influenced by AI. For dealmakers working across multiple languages, leveraging AI technologies like AI-powered document translation can lead to more efficient, accurate, and strategic M&A processes in both the buy-side and the sell-side. 

AI-powered document translation can significantly address:

• Overcoming language barriers: Enable your teams to understand and analyze documents in multiple languages, reducing the risk of legal implications due to misinterpretations.
• Streamlining workflows: Eliminate the time-consuming process of manually downloading, translating, and re-uploading documents individually to improve efficiency and productivity.
• Simplifying multilingual projects: Effectively handle projects involving multiple languages, ensuring consistency and accuracy across all translations.

As AI continues to evolve, its role in M&A will only become more integral, offering new possibilities and transforming the way deals are conducted. Embracing the AI revolution is not just about staying ahead of the competition – it's about redefining the future of M&A.