Planning successful cross-border mergers and acquisitions

By Mark Jamrozinski

Successful cross-border mergers and acquisitions don’t need to be scary, but they do need to be planned properly. Expanding into a foreign market means: 

• finding the right target
• executing the right transaction
• and integrating your businesses the right way.

I’ve seen my fair share of these kinds of opportunities, and in the end, it always comes down to preparation. Any kind of cross-border deal represents increased risks for all stakeholders, and these risks need to be carefully considered and factored into the planning stage — including a company’s thesis and targets. I’ve identified a few key areas that I think any leadership team needs to consider when looking abroad.

Understand foreign markets and targets

Having domestic experience doesn’t necessarily mean understanding how your business will operate in emerging markets. Foreign markets may use different strategies to reflect conditions in their own markets and regions, including cultural influences (such as religion and traditions), language laws, buyer preferences, engineering standards or product regulations.

It’s important for companies to choose M&A targets that match their growth goals, and this is only achieved through careful strategy that’s reinforced with thorough target screening, focused due diligence and detailed integration planning.

A company must have a clear vision and strategy as to why it should expand globally.

The due diligence and analysis that is required will make it easier to find the right M&A target in a foreign market that matches the buying company’s profile, and one that can be successfully integrated. It’s common to see companies bring in independent advisors to support M&A activities at this stage, and even earlier, as these advisors are not tied to the success of the deal and can provide their expertise throughout the lifecycle.

Assess your targets with three questions

Assuming a company has thoroughly understood the “new” host country’s laws, regulations, political environment and culture, it can use these variables to educate its leaders and employees on the economic viability of a particular transaction upfront.

The particular national priorities of a host country can impact how the deal is approached. There are three main questions a leadership team should focus on when assessing a foreign target:

• Strategic fit: does the deal thesis clearly explain how the deal adds value? Did we identify specific opportunities that can be created by the deal and did we develop strategies to capture them?
• Quality of earnings risk: have we performed thorough due diligence on the sustainability of earnings and business practices? Foreign companies may have aggressive financial and operational strategies relative to the Canadian market.
• Attainability of potential synergies: have we carefully assessed all the expected benefits of new markets, synergies and cost savings with an experienced eye before jumping into a transaction in a foreign market?

Prepare a successful integration

Many Canadian companies are familiar with the challenges of integrating domestic businesses, but how many of them are prepared for integrating foreign subsidiaries? To support cross-border integration, it’s important to understand the kinds of risks that arise.

A failed merger integration can prove problematic in the long run, so it’s best to take the steps early in the process to avoid any of these risks. By conducting appropriate financial, tax and legal due diligence as well as properly identifying and qualifying integration risks, a company will be better prepared for when its operations become fully functional, and it can then start reaping the rewards of a successful and profitable merger.