Cross-border M&A: opportunity & uncertainty
M&A across borders brings a new level of complexity to transactions. Reaching an all-time high in 2015, cross-border M&A transactions continue to be desirable amid improving economic conditions, changing politics, a boom in AI, and the rise of data centres' importance across industries.
What is cross-border M&A?
Cross-border mergers and acquisitions are where two companies or firms in different jurisdictions (or economies) combine to form a new, joined company, or one company purchases the assets of the other and subsumes that company into its operations.
Examples of cross-border mergers
Renault and Nissan (1999)
In 1999, French car manufacturer Renault merged with Japan’s Nissan car manufacturer. This strategic merger created significant synergies for both parties including cost savings, exchange of technology and competitive positioning in global markets.
Santos and Oil Search (2021)
The merger of Santos, an Australian company and Oil Search in Papua New Guinea created a top 20 oil and gas company with assets in Australia, Timor Leste, Papua New Guinea and North America.
Univision Communications and Televisa (2022)
Nine months after announcing the merger, Univision and Televisa closed the deal for $4.8 billion. The new company, TelevisaUnivision Inc., built on a united Spanish-language content library with 300,000 hours of programming and an extensive portfolio of IP and sports rights. The new company would reach over 100 million Spanish speakers daily, accounting for 60% of the audience in the US and Mexico across TV, digital, streaming and audio.
Exxon Mobil and Pioneer Natural Resources (2024)
Announced in October 2023 and closed in May 2024, Exxon Mobil’s $59.5 billion merger with Pioneer Natural Resources enhanced Exxon Mobil’s production capabilities and market presence in the oil and gas industry, in particular in the Permian Basin. The merger transitions Pioneers 2050 net-zero goal to a 2035 plan.
Examples of cross-border acquisitions
Disney acquires Marvel (2009)
In 2009, Disney acquired Marvel, diversifying its offerings and expanding its global audience by tapping into the international fan base of Marvel’s iconic characters and comics. The resulting Marvel Cinematic Universe shows the results of a successful cross-border acquisition.
LMVH acquires Tiffany & Co (2021)
French-based LMVH Moet Hennessy Louis Vuitton SE acquired US jeweller Tiffany & Co in 2021. Tiffany & Co would expand the jewellery and watch division of the luxury brand, joining Bulgari and Tag Huer to strengthen its US presence and capture the expanding market.
Hitachi acquires Global Logic (2021)
Hitachi’s acquisition of Silicon Valley company GlobalLogic enhanced Hitachi’s digital engineering service capabilities across IT, energy, industry and mobility to accelerate the digital transformation of railways, energy and healthcare systems that made up the Japanese company’s core business.
Parker Hannifin Corporation acquires Meggitt PLC (2022)
US engineering technology company acquired UK defence and aerospace company for $8.8 billion in 2022. Strong cultural alignment on both sides focuses on teamwork, engagement, integrity, operational excellence and innovation.
Benefits of cross-border M&A
Cross-border M&A can help firms to overcome saturation or slowdown in core domestic markets. Mergers and acquisitions can bring technology and productivity benefits, enhance the diversification of the business’ portfolio and enable overseas earnings. Companies will also look across borders to find acquisition targets to enhance supply chain security and secure global reach.
Companies may acquire intellectual property and new talent, expand distribution networks, add to production capacity or secure new product technology. Finally, cross-border M&A provides entry into new geographic markets, gaining local market knowledge.
Securing market share
As industries rapidly evolve, big companies often acquire start-ups with desirable technology to stay competitive. This secures their position as industry leaders and keeps their product suite on par with customer expectations.
Example: Microsoft acquired Minit, a process mining company, in 2022, to enhance its Power Automate software for enterprise clients. This acquisition keeps Microsoft competitive in the emerging robotic process automation (RPA) as this tech industry segment consolidates globally with tech giants like Salesforce, SAP and IBM all acquiring process mining and automation software companies.
Acquiring innovative technology
Buying technology, intellectual property or innovations allows companies to grow their offering by adding new service lines to an existing brand. Non-tech companies in disrupted markets can benefit from innovative technology outside their usual market.
Example: Visa acquired UK-based fintech Currencycloud in 2021 for $962 million (reduced by the investment of $80 million in 2020) to enhance its existing cross-border payment technology. Currencycloud has 500 banking and technology clients in more than 180 countries.
Expand globally with a targeted acquisition strategy
Risks of cross-border M&A
However, this process is not without risk. Multiple studies show that 70-90% of M&A fails or underperforms (Emerald Insight, Semantic Scholar and Harvard Business Review).
Cultural factors are always an M&A risk
Company culture can ultimately make or break a deal. From the beginning, culture is challenged by business transformation and a laser focus on organizational performance during the due diligence process. Setting the scene and identifying a target that is complimentary to the acquirer can help to overcome these challenges and enhance value creation.
Anti-trust law and regulation
Understanding the regulatory landscape in the target country is extremely important to a successful deal. In particular, carefully navigating anti-trust laws which can result in the deal being nullified or blocked by the regulator, can save both parties time and money.
Regulation is another factor, with election cycles and politics playing a role in creating uncertain regulatory environments for trade.
Example: Anheuser-Busch InBev acquired SABMiller in 2016, addressing the risk of market consolidation by selling certain SABMiller brands to meet regulatory requirements. This satisfied anti-trust considerations while pursuing the core objectives of the M&A strategy.
Thoughtful integration planning before and after the deal and thorough research into the target company’s potential and culture can help realize maximal value.
Cross-border M&A trends
Cross-border deals generate higher than average returns than deals confined to the domestic US market. In 2023, US companies increasingly looked to Australia for mergers or acquisitions. IT and healthcare sectors were best represented, a trend likely to continue as AI transforms both markets.
Volumes of cross-border deals are booming globally as CEOs and boards gain an increased tolerance for geopolitical uncertainty, offset by the advantages of technological advancements, specialised skills and IP that can be found in foreign markets.
Preparing for international M&A
To effectively realise synergies and avoid delays during the deal and the integration stages of M&A, teams need to plan and sequence due diligence and integration processes. International M&A comes with all of the requirements a domestic deal entails, plus additional considerations that are specific to the target company’s country.
Common cross-border issues include labour matters, minority investment issues and anti-trust and tax regulations. Extensive due diligence to understand industry-relevant product registration, certification and labelling requirements is critical for highly regulated industries like life sciences, health care, chemical and consumer goods and financial services.
Let’s take a closer look at the aspects of the deal M&A teams need to consider in cross-border mergers and acquisitions.
Company and operating structure
When large companies undertake M&A, overly complex structures may misalign with corporate strategy and drive up administrative costs. The structure of a deal is often shaped by the capital structures of the entities involved, the classification under applicable tax law and the nature of the shareholder base, and by the tax considerations of the deal.
Acquisitions of or mergers with private companies tend to provide more flexibility as these are generally not subject to the same regulatory requirements or scrutiny as public companies. The type of merger or acquisition will also determine the most effective final company structure.
Operating in distributed office locations is another challenge facing newly merged organizations across borders. With the rise of remote work in the last five years, this should be easier to navigate but will still present some challenges.
Post-deal integration needs to consider cultural differences
Different markets and economies have differences beyond language, influencing customer behaviour, employee expectations and company culture. Understanding differences is key to building relationships and steering a successful post-merger integration.
Example: Walmart’s 1999 acquisition of British supermarket network Asda failed, with the sale of Asda in 2021 below the original purchase price. Price wars with Aldi and Lidl impacted Asda’s value play, squeezing profit margins. US supermarket giant Walmart failed to understand Asda’s customers and the market segment to drive value and profit.
Regulatory requirements may differ
Operating in multiple countries will mean understanding and complying with the regulations specific to each jurisdiction.
Example: When Uber acquired Careem in 2019, a Dubai-based ride-hailing company. In 2020 Uber had operations in more than 70 countries and had sold operations in China, Southeast Asia and Russia after sustaining losses. Careem’s legal advisors played a critical role in addressing the regulatory requirements to ensure a smooth transition and continuity of the service in the Middle East, North Africa and Pakistan.
Tax and finance implications across borders
Understanding tax laws and obligations in each jurisdiction can enable merging companies to optimally structure the new combined company. There may be differences in currencies and possible volatility in exchange rates between stronger and weaker currencies,
Designing a structure for the combined company to minimise double taxation and benefit from tax incentives during the due diligence process can help decision-makers accurately assess the risk and value of acquiring the target.
Due diligence
Thorough due diligence is even more critical for cross-border deals. Differences in language, currency and tax create challenges for analysts. A strong understanding of anti-trust laws in the relevant country and the details of the target’s health, risks and opportunities are key to ensuring long-term success.
Due diligence processes must cover finances, operations, intellectual property and human resources. It’s key to understand not just the employee structure at the target but also the labour laws, employment practices and talent retention strategies in place.
Effective due diligence drives a successful deal
Political, economic and social factors
Long-term investment across borders can be affected by the political and economic stability of the country. Corporate social responsibility, public awareness, media interest and environmental impact as well as alignment with the country’s strategic national interests all play into the sustainability and viability of the business long-term and the ability of the acquirer to realise value from the target’s assets.
Example: Nestle acquired companies in Brazil (Grupo CRM) and Mexico’s stable emerging markets, allowing the company to tap into growing consumer demand while minimizing political risks that can arise in less stable regions.
Stakeholder communication
Effective communication that navigates language barriers to deliver accurate information and clear outcomes is central to a successful cross-border deal. Stakeholder communication extends from dealmakers to the employees, customers, suppliers and investors throughout the M&A process and into the post-merger integration.
Transparent and timely communication mitigates resistance to change, builds trust and smooths relationships. Effective communication ultimately helps to drive efficiency and effectiveness for the combined companies.
Artificial intelligence tools may play a central role in future deals to automate the distribution of core messaging in multiple languages and facilitate Q&A processes between individuals speaking different languages.
Example: When Facebook acquired WhatsApp in 2014, transparent communication helped to maintain trust with WhatsApp users while the messaging platform was integrated into the Facebook ecosystem. This communication focused on the ongoing commitment to privacy and data security.
Company culture
Differences in the cultures of organisations can disrupt operations and jeopardise integration processes. For example, a start-up with a consultative and process-driven culture may conflict with an established acquirer’s top-down, directive culture.
Research from McKinsey in 2018 shows that companies that manage culture effectively in integration planning are 50% more likely to meet or exceed synergy targets for cost and revenue.
Master cross-border M&A process with detailed planning and an organised deal workflow
Cross-border M&A can reward those involved with more robust and sustainable businesses that will generate significant value in the long term. From planning targeted acquisitions to effective post-deal integration, a proven and trusted deal workflow can organise information so nothing is missed.
With Ansarada Deals you can seamlessly navigate target evaluation, due diligence and post-merger integration. Enhanced by AI and secured to meet ISO27001 certification and GDPR compliance, Ansarada Deals provides end-to-end visibility of the merger or acquisition.