Cross-border mergers and acquisitions are a steady trend in today’s business world. It is all because of globalization, that has brought all the countries in the world closer as a single entity to make their businesses compete in the global markets.
Cross-border mergers and acquisition has now become the fundamental characteristic of a global business landscape. It is an easy way for a business to spread its operations into other countries which would otherwise be difficult due to the market and logistical restrictions of each country.
However, successful implementation of a cross-border Mergers & Acquisition depends on various success factors that are needed to be met to ensure the success of the business in the new market.
But, what happens if you get it wrong?
Cross border M&A is a huge step taken by a business. One wrong decision can create various financial, reputational and regulatory implications for the business. You have entered into an agreement with the company that is being acquired which is detailed in a Transitional Service Agreement as well. Hence, any non-compliance and delays in the terms result in huge financial implications.
Apart from the financial implications, there are various non-financial consequences as well. For instance, if there is any delay in setting up a payroll system for the employees of the acquired company, it can result into resentment from employees to accept the new management.
You also need to understand how to operate from your home country to manage the new business. There can be changes in compliances, taxation systems, local laws and much more. Any error can impact the business and may impact the success of venture itself.
Hence, getting it right is the business’ priority. Here are the factors that you should consider while implementing cross-border M&A.
Proper management:
Like every other business transaction, businesses need to ensure that they undertake the cross-border M&A with proper technique and management in all respects. Some critical management activities that are involved in the implementation of M&A are market analysis, product development and integration and the activities related to human resources.
Every country has a different market with unique demands and structures. Hence, it is essential that the markets of both the countries are analysed in entirety to draw a comparative analysis to assess the apt structure of operation. Each business has its own unique products/services. So, when the two businesses merge, there is a need to integrate both the businesses together.
Human resource is an important aspect in the successful implementation of cross-border M&A. There is always a factor of fear in the mind of the employees when the cross-border M&A comes up. This can affect the productivity of the employees. Hence, it demands that the management understands the concerns of human resource and take corrective action on time.
Cultural integration:
It is the most complex factor in cross-border M&A. Most of the times, both the businesses hold different views on the business culture while ignoring the fact that during M&A a business can have negative consequences for the sustainability of the deal. Different businesses have different market philosophies. Hence, it becomes the responsibility of the management to strategize and integrate both the businesses culturally.
Business policies:
Each country varies in business policies. Hence, when in the case of the cross-border M&A where policies merge, it is possible that any of the businesses may not be compliant to adapt to the business policies of the other business. Consequently, it becomes essential that the businesses consider these factors at initial stages to adjust and cope with the policy together for success of the M&A.
Taxation:
Taxation is a crucial factor involved in a cross-border M&A. Most of the countries have unequal tax rates for the foreign owned business and locally owned business. In case of a cross-border M&A that can defeat the aspiration of acquiring firm. Hence, it becomes important that the taxation aspect of the business is critically reviewed and professional opinion is consulted is before going ahead with the deal.
General business conditions in the country:
Every country has different business conditions in terms of legal and regulatory framework. There can be various laws in respect of security, corporate or completion laws that are likely to diverge from each other. Hence, before going ahead with the deal, it is essential to review the employment regulations, antitrust statute and other contractual requirements needed to be dealt with.
The bottom line:
The cross-border M&As can provide great benefits to the business in terms of expansion of its operations in other countries. But, to have a successful and sustainable cross-border M&A, there are lots of factors that need to be considered along with the thoroughly planned preparation and commitment of time and resources.
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