Merger and acquisition transactions have many benefits and risks. Each deal works differently, but they can allow a business to compete more effectively, expand its brand, eliminate redundancy and further excel. A merger or acquisition may enable a company to grow faster than starting from scratch with a new department or branch. Still, these transactions can involve complexities such as tax laws and treaties, and complex business structure and operations challenges, often more so when the parties are in different parts of the world. Below is a brief overview of some pros and cons of cross-border mergers and acquisitions.
Benefits
The adage that two heads are better than one is a driving mindset in mergers and acquisition deals. The benefits of putting two companies together can include:
Market growth: Businesses based in different markets give the buyer the ability to increase market access with more potential for growth.
Market profile: Using a local entity in a target market allows for a start with at least a foothold market rather than trying to launch a startup.
Diversification: Different markets can help stabilize the ebbs and flows of economies.
New ideas: The opportunity to utilize new technology, ideas, knowledge and practices may exist. These can help a company stay ahead of competition and drive growth.
Risks
There can be great benefits to these deals, but there are also some common risks:
Culture: Cultural differences can be a major hurdle to the business’ integration. Examples include language barriers, company cultures, management styles, work practices or communication methods.
Regulation: Rules in one country may not apply in another one. Navigating the details of buying or merging a business can be time-consuming, complex and costly.Failure to follow regulations and laws can lead to financial penalties, legal disputes and even harm to a company’s reputation.
Finances: If the merger parties operate in different countries, there can be issues with exchange rates, political disputes, or economic uncertainty.
Local guidance is often essential
Relying upon local knowledge is essential for sellers and buyers of cross-border mergers and acquisitions. Attorneys can help address the rules, regulations and legal issues, and they can also help structure a deal and provide other necessary business services.