Executive Summary
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Three out of five cross-border M&A deals do not live up to expectations, mainly due to culture clash, poor due diligence, and contrasting management styles.
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With the growing trend of cross-border transaction, post M&A failure can be eliminated with systematic pre M&A due-diligence.
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While most firms focus on fundamental “hard” challenges such as infrastructure, EBIDTA, ROI, and more, 80% of the risks associated with international M&A derive from “soft” challenges such as cultural integration.
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The skills required to negotiate successfully in one’s own country do not necessarily translate to success abroad. The key is to identify which skills cross over, which skills require retooling, and which skills are simply missing from the toolbox.
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Knowledge and understanding of the business operations and finance of the target company, no matter how in-depth, will not compensate for lack of cultural understanding in the negotiating process.
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Successful negotiations only occur when both sides understand and trust each other and are willing and able to engage in a process of meaningful information exchange. Therefore, getting the right advisory team to help with focal points and issues in different regions of the world is crucial.
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From the very first stages of negotiation, and certainly before a letter of intent has been entered into, the parties in a cross-border transaction must think carefully about their legal assumptions and question whether they apply before coming to the negotiating table.
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Following basic guidelines will help prevent late-stage cultural problems from derailing an otherwise sound international M&A transaction.
Introduction
Companies choose to undertake a merger and acquisition (M&A) for a variety of strategic reasons: to obtain new technology, new brands, complementary products, access to experienced management, or to remove a competitor or potential competitor. Over the past decade, M&A activity has increased substantially as this route is a natural progression for businesses that are gaining experience and confidence abroad.
The current global crisis is further fueling the M&A frenzy as sellers are generally more distressed and, therefore, more inclined to work with foreign buyers. Also, there is less competition from buyers in the seller’s home country, and, most importantly, prices have fallen to attractive levels.
Rise up, stretch, and rub the green dollar signs from your eyes. Three out of five deals do not live up to expectations, mainly due to culture clash, poor due diligence, and contrasting management styles, but also to a myriad of other pitfalls.
This article can serve as a focal point for executives entering into the world of M&A, as well as a troubleshooting guide for executives already working in that space who are having difficulties. Success is considered to mean a post-M&A integration of both companies where they continue to do well by capitalizing on growth while pursuing the goals they planned to pursue at the outset. Successful companies integrate M&A with a strategy that starts with due diligence and continues through negotiations to a post-integration phase that has been investigated and planned ahead.
So, how should companies avoid the hasty pre-deal planning that turns so many of today’s M&A transactions into disasters?
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