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Home > Mergers and Acquisitions Best Practice > Grow Globally: The New Altitude of Cross-Border M&A

Mergers and Acquisitions Best Practice

Grow Globally: The New Altitude of Cross-Border M&A

by Mona Pearl

Executive Summary

  • Three out of five cross-border M&A deals do not live up to expectations, mainly due to culture clash, poor due diligence, and contrasting management styles.

  • With the growing trend of cross-border transactions, post M&A failure can be eliminated with systematic M&A due-diligence.

  • While most firms focus on fundamental “hard” challenges such as infrastructure, EBIDTA, ROI, and more, 80% of the risks associated with international M&A derive from “soft” challenges such as cultural integration.

  • The skills required to negotiate successfully in one’s own country do not necessarily translate to success abroad. The key is to identify which skills cross over, which skills require retooling, and which skills are simply missing from the toolbox.

  • Knowledge and understanding of the business operations and finance of the target company, no matter how in-depth, will not compensate for lack of cultural understanding in the negotiating process.

  • Successful negotiations only occur when both sides understand and trust each other and are willing and able to engage in a process of meaningful information exchange. Therefore, getting the right advisory team to help with focal points and issues in different regions of the world is crucial.

  • From the very first stages of negotiation, and certainly before a letter of intent has been entered into, the parties in a cross-border transaction must think carefully about their legal assumptions and question whether they apply before coming to the negotiating table.

  • Following basic guidelines will help prevent late-stage cultural problems from derailing an otherwise sound international M&A transaction.

Introduction

Companies choose to undertake a merger or acquisition (M&A) for a variety of strategic reasons: to access new markets and expand their global footprint, obtain new technology, new brands, complementary products, access to experienced management, or to remove a competitor or potential competitor. Over the past decade, M&A activity has increased substantially as this route is a natural progression for businesses that are gaining experience and confidence abroad. The global crisis did further fuel the M&A frenzy as sellers are generally more distressed and, therefore, more inclined to consider this route. Also, there is less competition from buyers in the seller’s home country, and, most importantly, prices have fallen to attractive levels.

However, the picture isn’t as rosy as we may wish to see. Rise up, stretch, and rub the green dollar signs from your eyes. Three out of five deals do not live up to expectations, mainly due to culture clash, poor due diligence, misalignment of strategic goals with the market reality, and contrasting management styles, but also to a myriad of other pitfalls.

This article serves as a focal point for businesses planning to enter into the world of M&A, as well as a troubleshooting guide for the ones already working in that space who are having difficulties. Success is considered to mean a post-M&A integration of both companies where they continue to do well by capitalizing on growth while pursuing as well as adapting the goals they planned to pursue at the outset. Successful companies integrate M&A with a strategy that starts with due diligence and continues through negotiations to a post-integration phase that has been investigated and planned ahead. So, how should companies avoid the hasty pre-deal planning that turns so many of today’s M&A transactions into disasters?

Strategic Alignment

For some, the world is flat; others say it is a bumpy and curved world. Whatever the terrain, there is one major change that companies are having an extremely hard time planning for: designing a new kind of global strategy which focuses on the ability to change in almost a moment’s notice, and still maintain the action plan as an integrated unit. Sounds like a contradiction? Maybe, but it is the new reality as events in the world force companies to redefine the meaning of strategic planning, and therefore, the way companies should see the global playground.

For many companies, cross-border M&A is a new altitude they need to manage. Like high-altitude climbing differs from many other pursuits because of the constant threat of danger and potential death, so do many successful leaders in national markets feel about global markets; the potential risk, the daunting idea of failure, and the unknowns. The difference is that elite high-altitude climbers mentally prepare for the climb while maintaining an effective focus on the mountain. They keep their eyes open, looking up, reaching the new altitude. They know they need to acquire new skills to reach the top.

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Further reading

Books:

  • Buono, Anthony F., and James L. Bowditch. The Human Side of Mergers and Acquisitions. Managing Collisions Between People, Cultures and Organizations. London: Jossey-Bass, 1989.
  • Hofstede, Geert. Culture’s Consequences: International Differences in Work-Related Values. Beverly Hills, CA: Sage, 1980.
  • Marks, Kenneth H., Robert T. Slee, Christian W. Blees, and Michael R. Nall. Middle Market M&A: Handbook for Investment Banking and Business Consulting. Hoboken, NJ: Wiley, 2012.
  • Pearl, Mona. Grow Globally: Opportunities for Your Middle Market Company Around the World. Hoboken, NJ: Wiley, 2011.
  • Rosenblooum, Arthur H. Due Diligence for Global Deal Making: The Definitive Guide to Cross-Border Mergers and Acquisitions, Joint Ventures, Financings, and Strategic Alliances. Princeton, NJ: Bloomberg Press, 2002.

Articles:

  • Brannen, Mary Yoko, and Mark F. Peterson. “Merging without alienating: interventions promoting cross-cultural organizational integration and their limitations.” Journal of International Business Studies 40:3 (April 2009): 468–489. Online at: dx.doi.org/10.1057/jibs.2008.80
  • Capron, Laurence, and Nathalie Pistre. “When do acquirers earn abnormal returns?” Strategic Management Journal 23:9 (September 2008): 781–795. Online at: dx.doi.org/10.1002/smj.262
  • Porter, Michael E. “From competitive advantage to corporate strategy.” Harvard Business Review 65:3 (May 1987): 43–59. Online at: tinyurl.com/434jzzl

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