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The risks and rewards of cross-border M&A
Survey results: Global executives on investing abroad
Cross-border mergers and acquisitions (M&A) has emerged as a way to quickly gain access to new markets and customers—and global trends point to increasing deal volume. But as cross-border deal activity continues, companies will need to weigh the risks and rewards of engaging in these ventures against making greenfield investments.
- Cross-border M&A
- Strong appetite for cross-border M&A
- Unique due diligence considerations
- The critical importance of integration planning
- Considerations for executives considering cross-border M&A
To better understand the risks and rewards associated with cross-border deals, Deloitte conducted a survey of more than 500 client executives with cross-border M&A experience across regions, industries, and functions. In addition to the United States and Canada, executives also represented APAC, EMEA, and LATAM regions.
Our report indicates that firms are becoming more competent and experienced in cross-border acquisitions—acknowledging the importance of comprehensive planning, tapping the expertise of external advisors, using thorough due diligence—and are thus able to deliver on their deal objectives. However, executives remain cautious as they navigate the murky waters of global economic and political instability.
Strong appetite for cross-border M&A
Survey respondents identified drivers that create a compelling business case for cross-border M&A. These include saturation or slowdown in core markets and need for diversification, regulatory uncertainty in home markets and high repatriation costs of overseas earnings, and technology and productivity enhancement synergies.
Top strategic deal objectives
Source: Deloitte analysis through primary survey.
Value might not add up to 100 percent because respondents could select more than one answer.
The trend toward larger deals continued into 2016. The top three investors in the first quarter of 2016 were China, Canada, and the United States, and the top three investment destinations were the United States, Switzerland, and the United Kingdom.
Unique due diligence considerations
Acquiring companies may have to recalibrate their perceptions of risk and their traditional due diligence process to address risk factors that accompany cross-border M&A transactions. The deal team will need to focus on common risk factors such as national and regional tax laws; the availability, accuracy, and reliability of the target company’s financial information; the country’s political stability; and the target’s compliance with the US Foreign Corrupt Practices Act, and similar anti-bribery, and anti-money laundering regulations.
The critic: The critical importance of integration planning
When reflecting on their regrets from prior cross-border M&A deals and opportunities for improvement, 33 percent of executives said they want to place more emphasis on comprehensive pre-and post-deal planning, 32 percent want to be more aggressive in negotiations, and 31 percent want to conduct more research on a target’s market potential and company culture. From a regional perspective, respondents in LATAM and APAC shared similar regrets around integration, and initial target research.
Considerations for executives considering cross-border M&A
Companies can achieve substantial financial, market, and competitive value through cross-border M&A, and executives should plan ahead, conduct thorough due diligence, and closely manage pre- and post-deal execution.
Based on our M&A experience, executives and deal members should consider:
- Ensure that the deal thesis and deal objectives drive all phases of the M&A lifecycle.
- Adapt the deal methodology and playbook to specific deal circumstances to preempt global M&A challenges.
- Integrate pre-deal due diligence with pre-close planning activities to prevent handoff misses.
- Structure the deal so it has the best chance of meeting its objectives.
- Define the overall integration scope, approach, and plan for achieving both Day 1, and end-state goals.
- Organize a global integration program that has representation from both acquirer and target around key work streams and regions/countries.
- Focus efforts on effectively planning pre- and post-close integration in detail, with dependencies, and critical path clearly outlined.