In the increasingly globalized economy, international mergers and acquisitions (M&A) have become a key growth opportunity for firms across the US. Going cross-border opens doors to new infrastructure and diverse customer bases, which can be incredibly challenging to find or build from scratch domestically. With that being said, the potential reward does not come without risks. If you or someone you advise is considering an international deal, these 5 tips will help you navigate the challenges and complexities that commonly arise and increase your chances of long-term success.
When approaching emerging (less-developed) markets such as Eastern Asia and South America, risk is lessened greatly when you keep it simple and stick to “tuck-in” type acquisitions, which simply supplement your customer base and/or manufacturing capabilities for a product or service (adjacent to one you are already well-established with) rather than expanding into an entirely new and unfamiliar product or service offering. For obvious reasons, the risk level is lessened further when the target is in a more developed market, such as Western Europe, and even more still when the target is domestic.
Success is much more likely if the target already has significant sales to Western firms. A lot of the groundwork for a smooth transaction will have already been laid and you can assume that a comprehensive supply chain audit has already taken place in order for said Western firms to ensure quality and also avoid PR damage if one of their main suppliers is found to be partaking in unethical business practices.
In the event your overseas target does not have significant sales to Western firms, you should expect to invest 2x-3x more time and money on the due diligence phase than you would for a domestic target. Differing laws and business culture in some countries leave a lot of room for questionable practices and untidy books in firms that aren’t being held accountable to higher standards by their existing business partners.
In the long-term, success is much more likely when you not only have well-established core values and systems, but also when you stay disciplined about transplanting them to any and all new acquisitions once the deal is complete. Consistency in software applications, accounting systems, and IT infrastructure, along with having a strong understanding of core values firm-wide allows you the ability to keep tighter control over day-to-day global operations while maintaining a lean management structure.
Acting as a trusted source of experience and advice through each phase of the transaction, an investment banker is particularly vital in international m&a deals. With vast cultural differences coming into play, an investment banker serves as a trusted 3rd party, advocating on your behalf and showing your commitment to the target company from first contact through to closing.
Stout's Investment Banking practice provides M&A advisory, private capital raising services, and other financial advisory services to portfolio companies of private equity firms, closely held or family owned businesses, and divisions of large corporate parents. Our clients and their advisors rely on our extensive international experience and country specific expertise to seamlessly address their most complex international investment banking needs.