Five steps to cross-border deal success

Five steps to cross-border deal success

Herbert Smith Freehills’ new cross-border M&A report outlines five crucial issues dealmakers will need to address as they seek to maximise their M&A opportunities

1. Understand regional differences

The survey reveals there are major differences between the opportunities and challenges dealmakers will be confronted by as they move from region to region. The legal and regulatory headaches posed by deals in developing markets, for example, may be less challenging in developed economies, but these regions bring their own problems – economic woes or high valuations, for example. Accordingly, while companies may have a global mindset, they also need to think regionally. Dealmakers need access to expert advice and experience that delivers on both counts. M&A advisers must be able to provide a global network and culture with consistent standards and practices in markets all around the world. At the same time, they also need be able to offer boots on the ground in individual territories in order to supply a detailed understanding of regional issues. “Strong legal teams operate effectively both globally and locally,” says Stephen Wilkinson, global head of M&A at Herbert Smith Freehills in London.

2. Make time for due diligence 

The need to devote sufficient time and resources to due diligence is a consistent theme throughout this survey. Almost all of the challenges identified by respondents that threaten the success of a deal have the potential to cause significant damage to companies that uncover them too late. By contrast, where issues are identified, they can generally be resolved – or, at worst, there is an opportunity to avoid damage by walking away.

3. Prioritise the big issues

While those regional differences are crucial, certain challenges crop up time and again wherever dealmakers are conducting transactions – it almost always makes sense to prioritise these issues. Above all, almost three-quarters of respondents (71%) say that where a deal has failed, anti-trust regulation was to blame. More than half picked out two other issues: labour and employment regulations (57%) and environmental regulations (54%).

4. Prepare for litigation

Some 73% of respondents believe litigation risk is increasing in global M&A – but while significant numbers of companies warn this could potentially deter them from doing deals, it is possible to prepare for such risk. “Use a multi-disciplinary team of advisers in order to identify the issues most likely to be a trigger for litigation,” advises John Ogilvie, dispute resolution partner at Herbert Smith Freehills in London.

5. Trust your instincts

Successful M&A requires nerve and single-mindedness. The slowdown in the Chinese economy, for example, might make for anxious times for businesses with exposure there, yet respondents to this survey see China as more likely than any country other than the USA to see the biggest increase in deal-making in the years ahead – reflecting its long-term potential.

The opportunity for dealmakers is there to be taken. Despite the uncertainty, the World Bank is predicting global economic growth of 2.9% for 2016 (compared to 2.4% in 2015), with a positive contribution from every geographical region of the planet. M&A is a route into this unfolding growth story, but businesses unable to draw on ‘global but regional’ expertise risk missing out.

Contact our experts

Stephen Wilkinson
Global Head of M&A
Tel: +44 20 7466 2038

Roddy Martin
M&A Partner (UK/US)
Tel: +44 20 7466 2255

Nicola Yeomans
M&A Partner (Asia)
Tel: +65 68688007

Andrew Rich
M&A Partner (Australia)
Tel: +61 2 9225 5707

Frédéric Bouvet
M&A Partner (EMEA)
Tel: +33 1 53 57 70 76

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After a record-breaking year for M&A last year, the start of 2016 has been more uncertain with the slowdown in the Chinese economy, depressed commodity prices and falling stock markets coupled with Eurozone instability all causing uncertainty in the global economy. However, despite these uncertainties, our two separate surveys, conducted in late 2015 and updated in 2016, demonstrate that the short to medium-term outlook for M&A as a priority focus for capital allocation by corporates remains extremely robust.

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