The Phenomenon of Cross-Border Mergers & Acquisitions
Cross-border mergers and acquisitions (M&A) have increased dramatically in the past few decades. They have become an important tool for companies to expand their markets and products, as well as to gain access to resources and technology. An M&A involves two or more companies merging or one company acquiring or purchasing the assets of another. Meanwhile, a cross-border M&A is when the companies involved are based in different countries.
One of the factors behind this increase in cross-border M&As is the liberalisation of many countries’ economies. This has made it easier to complete transactions and widen the range of potential partners. This is especially relevant for emerging markets, where the lack of local experience and expertise may mean that companies can benefit from acquiring foreign businesses that have developed cutting-edge know-how and technology.
In addition, governments have also been propping up M&A activity. For example, some governments have set up dedicated regimes to attract foreign investors, offering incentives such as tax exemptions and preferential lending terms. This can make M&A activity more attractive, providing the prospect of escaping from a stagnant domestic environment or stagnant corporate results.
In addition, there has been a big surge in demand for cross-border M&A activity. This has come from companies looking to broaden their geographical base, diversity their products and services, or gain access to new markets. This could be particularly important for large multinationals looking to expand their reach beyond their home country.
Furthermore, the advantages of an international M&A can extend beyond the corporate level to encompass national economic goals. Many countries view good M&A strategy as having a positive effect on the health of their economy as a whole. This is because M&A can result in more efficient allocation of resources, as well as creating jobs, supporting inward investment, and improving balance of payments deficits.
Despite the clear benefits of cross-border M&A, there are a range of risks associated with it. Perhaps most significantly, a cross-border merger and acquisition can involve major cultural clashes, as the firms attempt to merge different ways of working. Furthermore, a misunderstanding of local rules and regulations can easily lead to problems that may prove costly. A further risk is the potential for the deal to be blocked by either the domestic or home country’s regulators.
In conclusion, cross-border mergers
and acquisitions are becoming increasingly common as companies strive to gain access to new markets, new resources or new technology. Governments have also proved to be strong advocates of the M&A strategy, as a form of beneficial economic activity. The difficulties associated with successfully executing a cross-border M&A should not be underestimated, however. There are a range of potential pitfalls that companies should seek to prepare for, in order to ensure their M&A strategy is successful.
