Cross-Border Mergers and Acquisitions

Scott C. Whitaker

• Publisher: Wiley
• Year: 2016
• ISBN:
  9781119227458
• Edition: 1
• Topic: Commerce
• Subtopic: Fusions & acquisitions

Navigate cross border M&A for a flawless integration execution

Cross Border Mergers and Acquisitions is a practical toolbox for corporate strategy and development professionals dealing with the many challenges involved in cross border M&A. With a detailed discussion of key market specifics and broadly-applicable critical insight, this book demystifies the cross border M&A process and provides a host of practical tools that ease strategic implementation. A geographical overview explains the trends in major M&A markets including Australia, Brazil, China, Russia, the U.K., and the U.S., and industry-specific guidance covers Financial Services, Aerospace and Defense, Health Care, Tech, Manufacturing, and more. Leading experts relate lessons learned while managing actual PMI (post merger integration)processes, and the discussion of cultural impacts and specific situational needs provides deep insight into the type of leadership a flawless integration requires.

Corporate restructuring and internationalization efforts are increasingly relying on cross border mergers and acquisitions. Strategies, motives, and consequences are a complex navigational minefield, but this insightful guide provides solid, actionable guidance for leading a successful integration.

• Understand the region-specific details that make an impact
• Overcome common challenges and manage complex deals
• Gain practical insight and valuable tools for leading integration
• Learn the most current best practices for PMI® processes

Cross border M&A is complex, with myriad challenges and obstacles inherent to the situation. Successful integration and a smooth transition are critical, and there's little wiggle room—it's a situation where you have only one chance to get it right. Cross Border Mergers and Acquisitions is an essential guide to the process, with key tools for execution.

PART One
Cross-Border Strategy and Deal Planning

CHAPTER 1
Cross-Border Deal Evolution and Rationale

Gilles Ourvoie

CHAPTER LEARNING OBJECTIVES—IN THIS CHAPTER, YOU WILL LEARN:

• 
  How cross-border deals have evolved over time and what key lessons we can draw from such analysis.
• 
  At the firm level, what the main strategic motives are for cross-border deals and to what extent microeconomic factors influence the success of a deal.
• 
  More generally, what the main factors influencing cross-border deals are, from global to micro levels, and how they can be correlated with cross-border deal success.

CHAPTER SUMMARY

Mergers and acquisitions (M&A) transactions in general, and decisions to engage in a deal, are connected to a wide number of internal and external factors that have been thoroughly analyzed over the past century. Even if the specific analysis of cross-border deals is more recent and therefore limited, any decision maker should have a view of the main economic forces at stake and how they might influence the M&A and PMI outcome. Building on this knowledge brings as well a better view of the potential determinants of any cross-border deal, and how these determinants may be part of the due diligence process. This chapter aims to provide this general background information, with a view of potentially improving the quality of the decision-making process and the end result of the transaction.

THE EVOLUTION OF M&A AND CROSS-BORDER DEALS

To understand the cross-border mergers and acquisitions (M&A) phenomenon, one has to look back to get some perspectives. The M&A market is historically a recent phenomenon, which has been linked to a certain form of economic development based in particular on fungible shares easily negotiable on markets.

The M&A market’s evolution shows a globalization of this tool as a leading business transformation mechanism. However, this mechanism of ownership change and corporate value transformation has ups and downs. And there are still some major differences between countries in terms of how cross-border M&As are accepted and used.

Moreover, the analysis of these different M&A waves over a long period of time has yielded some details about the rationale for such transactions. A wide number of parameters have been connected to cross-border deals. We try here to provide an overview of the types of factors at play (both internally in the firm and externally), with the view that most of these factors play at different geographical levels (local, national, and global).

It is also important to note that cross-border deals are far more complex to achieve than purely domestic ones. The necessity to analyze business conditions abroad and gaps with domestic business conditions is a challenging intellectual process one should not underestimate.

The M&A market has been expanding globally to new territories and new sectors for more than a century. The number of countries in the world that are aware of such transactions is increasing, and the number of sectors concerned by cross-border deals is increasing as well.

However, this general expansion and commoditization of international M&A is far from linear; the market has had upward and downward movements, much like the financial stock market.

The M&A and cross-border market has its ups and downs, and executives must understand where they stand in terms of market situation to surf on the right waves. The timing aspect of a deal is an important element of success in order to pay at the right level of multiple and benefit from positive economic conditions to quickly finance the investment.

M&A: A Resilient Market¹

The global M&A market is quite volatile. The year 2014 was a renaissance for the M&A market, and this growth has continued in 2015, surpassing the 10% expected growth.² This upswing comes after a prolonged financial and economic global crisis that began in the United States in 2007 with the mortgage crisis. This financial accident caused increased budget deficits all over the world (United States, United Kingdom, Spain, Portugal, Italy, France, and so on) when nations attempted to cope with the economic downturn and increased unemployment. This, in turn, generated more trading chaos, this time in sovereign debt and public and private bond rates, jeopardizing, in particular, the most vulnerable countries (Greece, Spain, and Italy). To cope with this phenomenon, public austerity measures were taken to limit budget deficits (Europe). This eventually hit the global economy and caused five to seven years of gross domestic product (GDP) negative to low growth. And all of these problems have not been entirely solved yet.

In parallel, new conflicts have grown from local ones (Libya, Egypt, Sub-Saharan Africa, Syria, Yemen, Ukraine) into new global risks (jihadist terrorism, cyber-war, migrating populations). The BRICS (Brazil, Russia, India, China, South Africa) nations seem headed into an era of lower growth, and their role as the economic engine of the world appears weaker—with lower oil and gas prices (Russia) and growing local reactions against corrupt elites and social inequalities (China, Brazil): How will they fund their investments in infrastructure, education, and technologies? This high-level picture shows to what extent the connection of M&A and the general economic and geopolitical context is a complex one, based on a wide range of factors and not strictly connected to financial market optimism or GDP accelerated growth perspectives.

In an upward cycle, the global value of the M&A market increases far quicker than the underlying GDP. In 2014, the M&A market reached its highest level since 2007 with $3.3t of announced deals in value. This climbed to $4.7t in 2015, after two years at about a 40% annual growth rate. Actually completed deals are a bit below in terms of growth: +15% in 2014 and +25% in 2015 to reach $2.5t. These growth rates are to be compared with global GDP growth of between 1% and 7% in the most important economies. There is no quicker way for a firm to reach critical size and competitiveness. Altice reflects this hypergrowth acquisitive strategy in the telecoms and cable sector, with four acquisitions achieved in 18 months: Suddenlink ($9b of deal value) and Cablevision ($15b) in the United States and Portugal Telecom ($7b) and SFR ($13b) in Europe—among other deals achieved by the group.

This M&A growth is based on an important but almost stable number of deals. There were 42,220 transactions announced worldwide in 2014, and 42,313 in 2015. This represents about 3,500 deals worldwide on a monthly basis compared to a low of 600–800 in the worst year (2009), or about 115 new deals every single day. This important number of deals has a direct impact on the entire M&A business: in a dynamic market, the number of commercial opportunities is high as well for investors, bankers, lawyers, accountants, and consultants. As a consequence, the number of players in the industry is high, as is the competition among them.

The average value of deals has grown more in 2015 than the number of deals. In each active M&A phase, it has been noted that the value of M&A deals (based on the firms’ market capitalization) increases significantly.³ In 2014, 95 deals closed with over $5b of value. In 2015, 71 announced deals have been over $10bn in value, the highest level ever. M&A players (banks, corporations, private equity firms) have been able to more easily fund such complex deals. Deal value is an important factor in terms of both profits for the M&A industry and technical innovation. Mega-mergers tend to be projects where the level of high complexity and the existence of important resources make it possible to make progress on methods. Service providers tend to learn and invest in mega-projects, and then leverage this experience on smaller projects. Logically, the more a firm or country experiments with mega-mergers, the more its teams or nationals innovate and benefit from a sort of comparative advantage.⁴

A Geographically Spreading Market

The internation...