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Home > Mergers and Acquisitions Checklists > Achieving Success in International Acquisitions

Mergers and Acquisitions Checklists

Achieving Success in International Acquisitions


Checklist Description

This checklist considers what steps can be taken before, during, and after the acquisition to help improve the prospect of making the deal a success.

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Definition

All too often, domestic acquisitions fail to deliver all of the stockholder value envisaged by management ahead of the deal. According to a 2003 survey by KPMG, 70% of M&A transactions failed to achieve the goals set by top management. Throw into the mix the further complications of international acquisitions, such as possible culture clashes and suspicions over the impact of foreign control, and the prospects of making a real success of an international acquisition would seem to diminish even further. However, there are several issues, such as the need to ensure effective communication and the importance of technology integration, which companies should consider ahead of an international deal, as together these could significantly increase the prospects for success.

As with domestic acquisitions, potential acquirers should fully assess the extent of the strategic fit between the companies, considering whether the businesses could be combined in such a way as to unlock sufficient benefits as a single entity. In some cases, companies that have had a long period of successful strategic partnerships can find that their existing operational familiarity can work to their advantage in a merger or acquisition. From the employees’ perspective, experience of working in partnership with a potential acquirer may also allay some concerns over the risk of a serious culture clash.

Effective communication is at least as important in international acquisitions as in domestic transactions. Such communication should extend beyond the boundaries of the companies involved to include clients, suppliers, local authorities, and governments, as well as employees and investors, as a failure to communicate effectively and truthfully with any party could create suspicion over the objective of the acquisition.

While cultural factors can play an important role in the success or failure of an international acquisition, conventional practicalities of day-to-day operations of the combined entities must also be given adequate consideration. For example, a survey by PricewaterhouseCoopers in 2000 found that the integration of information systems was the biggest challenge following an acquisition, with almost three in four firms reporting problems in this area.

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Advantages

  • International acquisitions can improve operational efficiency (for example, through economies of scale), enabling companies to compete more effectively against the backdrop of increased globalization.

  • Acquisitions can also help a company to capitalize further on an existing competitive advantage.

  • International acquisitions can enable the acquirer to gain access to an existing network of clients and suppliers rapidly in a new market. Establishing an effective presence in a foreign market from scratch, by means other than an acquisition, could take many years.

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Disadvantages

  • Most acquisitions fail to deliver all the originally projected benefits.

  • Poorly managed acquisitions can create a climate of suspicion among employees of the target company, affecting morale and productivity.

  • Acquisitions can involve a considerable drain on management resources and can also generate high transaction costs.

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Action Checklist

  • Take time to identify a target company that has some strategic fit with your own organization.

  • Consider how closely the target company should be integrated following acquisition. There is some evidence that close integration can be disadvantageous in cases where the cultural fit between companies is limited.

  • Learn from the successes and failures of other similar cross-border acquisitions in specific industries.

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Dos and Don’ts

Do

  • Take professional advice on the regulatory environment in the target market at an early stage in the process.

  • Ensure that all relevant information is effectively communicated to all stakeholders before and after the acquisition.

  • Utilize the experience of managers from the acquired company in the post-merger management team.

Don’t

  • Don’t ignore the importance of cultural factors as well as operational requirements when planning an acquisition.

  • Don’t underestimate the importance of due diligence, particularly in markets where business practices may be different from those in your domestic market.

  • Don’t change management personnel unnecessarily as this can be highly disruptive to existing operations.

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Further reading

Books:

  • BenDaniel, David J., Arthur H. Rosenbloom, and James J. Hanks, Jr. International M&A, Joint Ventures and Beyond: Doing the Deal, Workbook. 2nd ed. Hoboken, NJ: Wiley, 2002.
  • Child, John, David Faulkner, and Robert Pitkethly. The Management of International Acquisitions. Oxford: Oxford University Press, 2001.

Articles:

  • Duncan, Catriona, and Monia Mtar. “Determinants of international acquisition success: Lessons from FirstGroup in North America.” European Management Journal 24:6 (December 2006): 396–410. Online at: dx.doi.org/10.1016/j.emj.2006.08.002
  • Lynch, Richard. “International acquisition and other growth strategies: Some lessons from the food and drink industry.” Thunderbird International Business Review 48:5 (September/October 2006): 605–622. Online at: dx.doi.org/10.1002/tie.20112

Website:

  • International Network of M&A Partners (IMAP): www.imap.com

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