M&A: Behind The Deal: The Complexities of Cross-Border Transactions

Global mergers and acquisitions have been on the rise since 2013. The OECD’s Global Forum on International Investment noted the trend, confirming consistent annual growth in global M&A since cross-border M&A volumes last declined in 2012. 2017 saw the trend continue, with a significant increase in deals valued $500m – £5bn.

While the larger value deals appear to be declining, worldwide M&A activity continued its ascent in 2017, rising 3% to $2.4 trillion overall during its first three quarters.

More notably, cross-border M&A activity accounted for 39% of transactions overall.

But why are cross-border M&A deals on the rise?
The imbalance of excess capital and deployment opportunities is primarily responsible. In Asia, for example, we are seeing liquidity rise in China and Japan which, despite Brexit, has resulted in an increase of Euro/Asia led deals in the last year (see below for Japanese and Chinese involvement in M&A worldwide). China and Japan have different motivations for acquiring businesses and brands outside of their own jurisdictions: China wishes to ‘bring goods home’ – rolling out superior products and innovations from overseas in their huge, and increasingly discerning domestic market. Japan, on the other hand, is facing a shrinking population therefore has to seek growth overseas, which cross-border M&A activity will solve by providing them with stronger international presence, ability to localise, and routes to market.

Traditionally, cross-border M&A has allowed companies to establish global growth through new routes to markets for existing products, but also to expand their market offering or capabilities.

This is not always straight forward, however. Behavioural differences – whether they are linked to familiarity with the overall buying process, or cultural standards – can lead to complexities in any M&A deal. Nowhere are these behavioural differences more prevalent than when executing a cross-border transaction – whether it’s the bidding process (in Japan acquiring decision by consensus versus European ‘point person’ led approach), or in the general interaction on next steps (where the US are so used to M&A transactions they can be ‘churned out’).

To achieve the most beneficial transaction strategy worldwide, navigating these differences is crucial. This ‘art of teasing out’ can be helped by locating the strategic point people early in a deal in order to understand the motivations and responses to any bidding process. Sense-checking multiple markets results in ensuring the best possible bidder or asset, but can be near enough impossible to achieve without local experts or the capacity to translate activity.

Daiwa Securities Group has responded to this expanding need while executing their own cross-border acquisitions. Signal Hill and Sagent – both established corporate M&A advisory boutiques in their own right – have been brought into the Daiwa family, alongside its established pan-European and Europe-Asia business activities under the DC Advisory brand, to increase Daiwa’s global advisory capabilities. Thus presenting one global team for clients to leverage the local expert knowledge required for success – and respond to the increasing M&A advisory demand around the world.

With the tackling of these complexities can come great rewards – not just in the execution of a transaction, but in the understanding of human and commercial behaviour across borders.

As technology continues to advance the concept of a global marketplace, the people behind activity can learn to break down borders in the same way.

In short, businesses are having to adapt more quickly to consumer, shareholder and legislative demands – all this in an uncertain and politically driven macro-economic environment. For those organisations where strategic global growth is required, Daiwa’s now global M&A advisory business is well positioned to deliver responsive and streamlined consultancy in multiple languages and locations. For those organisations where strategic global growth is required, Daiwa’s now global M&A advisory business is well positioned to deliver responsive and streamlined consultancy in multiple languages and locations.

The interview was filmed with Sarah Lockett, Business Correspondent of The Business Debate, Richard  Madden; CEO, UK, Tosh Kojima; MD, Asia Access and Scott Wieler, Chairman, DC Advisory.

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