How to ensure a successful cross-border M&A deal

Even as companies face a range of economic and geopolitical headwinds, demand for cross-border mergers and acquisitions remains high. Jonathon Parkinson, Managing Partner at Marktlink, delves into the essential details of getting cross-border business up and running in turbulent times.

Even as the energy crisis, runaway inflation and a falling pound weigh on the economy, the volume of cross-border mergers and acquisitions remains high. In fact, foreign investors are likely to take advantage of the opportunity presented by a weakening pound and allow them to buy assets at a lower rate. On the other hand, UK investors may be tempted to sell if their assets continue to depreciate. Together, these circumstances are likely to further fuel M&A activity in the coming months.

In August 2022, the UK was ranked as the number one investment destination in Europe as companies continue to seek growth and the motivation to expand into new territories and bring supply chains in-house. Sectors such as technology, healthcare and retail continue to have particularly high volumes of cross-border business. However, for those looking to buy a business in the UK and those looking to sell one, there are a number of considerations that need to be made.

Jonathon Parkinson, Managing Partner, Marketlink

To ensure the success of a cross-border transaction, companies should consider the impact of post-Brexit regulatory changes, assess whether the target company is culturally appropriate and find an M&A advisor with good local and industry knowledge to help them navigate the crisis Process.

Understand regulatory changes

Knowing and understanding the intricacies of the regulations involved in doing cross-border business has always been an important part of the preparation process. However, Brexit has resulted in a number of legislative changes, meaning it is important to stay up to date with regulation as it is subject to change. For example, new rules on foreign takeovers have recently been announced in the EU to protect and control markets.

Working with an experienced M&A advisor is one way to ensure business owners are able to understand post-Brexit changes and different cross-border regulations, and ensure that legislation is not preventing or delaying a successful transaction.

One change after the United Kingdom left the European Union is that there are now several bodies that need to be consulted during an M&A transaction. For example, mergers with an EU and a UK element may require approval from both the CMA and the European Commission. This need for double approval can also cause delays in completion. In the UK, the National Security and Investment Act, which scrutinizes international takeovers, is another regulatory obstacle to consider. Still, doing business in European markets shouldn’t be too problematic for this legislation, which tends to target investments from countries outside Europe.

Consider cultural suitability

When beginning a merger and acquisition, cultural fit is often overlooked. However, this is an important consideration as it can be a crucial aspect of running a successful business. Entrepreneurs need to have a detailed understanding of their own company culture and the culture of the target company to ensure a good match. This includes aspects such as management practices and ways of working, especially post-pandemic when many employees are working from home or adopting a hybrid approach.

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Failure to take culture into account can lead to problems in the integration process. For example, problems can arise when an attempt is made to implement a new way of working in an acquired company, or when employees of the acquiring company see services in the acquired company that they do not have access to.

It’s important to know which cultural elements are most important to the success of the deal, such as financial management, operations, or innovation. Entrepreneurs should make comparisons between the two cultures and decide on the best cultural aspects to retain from both to ensure these are not lost in a merger or acquisition.

While finance and legislation are high on the agenda when preparing a cross-border deal, cultural suitability should never be an afterthought. This is especially important when dealing with an international business as there will likely be cultural differences between working practices in different countries.

Working with a knowledgeable local advisor is another way to ensure a successful cross-border deal. An M&A specialist has the relevant expertise on the legislation, cultural differences, economy and industries in the country into which a company is being brought or sold and can help navigate the transaction process.

When selecting a consultant, it is beneficial to look for someone with specialist knowledge of the target industry as well as local expertise in order to secure the best possible deal. Finally, if you are engaging in a cross-border deal, make sure that the advisor you choose has experience working on international deals and is aware of all the intricacies involved.

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Look before you jump

Although the current uncertainty makes it more difficult to predict how M&A activity will develop, it is clear that the appetite for cross-border deals remains strong. Whilst there have been concerns about the impact of Brexit on M&A activity, this has subsequently led to a surge in appetite for UK takeovers as companies seek to gain access to UK markets. Combined with the weak pound, the UK remains an attractive investment destination. At Marktlink, 70% of our projects currently involve an international party and we expect this trend to continue.

However, before embarking on any cross-border business, business owners need to ensure they have completed the necessary preparations to ensure their success. There is an increasing requirement to understand the regulatory intricacies involved in doing business across borders and working with an experienced advisor will ensure this can be achieved.

Additionally, when selling a company, shareholders often have multiple options, meaning that conducting due diligence and considering which is the best cultural fit is an important and rewarding part of the process to ensure a seamless integration process.

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