Cross border transactions as a road to growth

Cross-border joint ventures involve different countries with different legal systems, operating in separate ways from each other. Cultural differences, language barriers and tax restrictions may cause problems or difficulties which may not be initially obvious when you begin to balance a business from afar.

When we talk about international deals, the official term is Mergers and Acquisitions (M&A). Cultural, political and language barriers all make international M&A challenging, as what works in one jurisdiction may not work in another. However, if successful, cross-border transactions can give your business the ultimate edge and allow you to develop exponentially. In 2018, 272 UK companies were involved in international acquisitions over the value of £1 million, according to the ONS. The value of these deals totalled around £22billion which is comparable with the 10-year average of £28billion.

Fork in the road

There are two ways to move your horizons overseas by either expanding your business to other countries or acquiring companies overseas. Both come with their own risks and rewards, however the latter is potentially much quicker; the reason people do M&A is to acquire and grow at speed, whereas organically growing is a much trickier task. Yet international M&A is in itself, a complex field to navigate.

Overall one in three of those surveyed saw the UK as offering good growth opportunities. However, nearly as many felt the EU would offer significant opportunities with nearly as many singling out the US.

Whilst establishing new branches overseas is popular with many businesses, of the 200 we surveyed, 21 per cent are in fact considering acquiring established local companies.

Whilst establishing new branches overseas is popular with many businesses, of the 200 we surveyed, 21 per cent are in fact considering acquiring established local companies.

Home advantage 

While we have mainly focused on moving your business from UK soil, it’s good to know what the experts think of investment here and while political or economic turmoil is an issue, there is interest from large international private equity firms. A lot of investors are using the UK as a launch pad, which then helps them to get a foothold into Europe, RSM helps those transactions happen. 

In uncertain times, businesses tend to hold off on their investment and expansion into the UK. Businesses that, in the past, would have garnered interest are now struggling to get traction on the international market, and we seem to be off the table for many, for now at least. 

However, some companies are using this time of indecision to explore their options, with some making small inroads into Ireland. Because there’s a comparable language, it’s legally perceived to be like the UK, and is geographically close, often Ireland is now being used as a passport into Europe.

Golden advice:

Make sure you pay the price that's right for your business Make sure you pay the price that’s right for your business

With so much private equity money around, bidding and auctions can get aggressive. It’s easy for prices to get pushed up. Be careful you don’t lose control and bid more than makes sense to you as a buyer. M&A ‘often destroys value’ because the buyer overpays.

Don't start a war unless you know how you're going to win the peace Don’t start a war unless you know how you’re going to win the peace 

Don’t acquire a company and get so obsessed with the fight that you forget to plan for what happens afterwards. The biggest mistake companies make is to only focus on winning, not the aftermath. If there’s no contingency plan for ensuring standards are kept the same and the transition is smooth, often staff will move on. Most of the value is in the people, so if you drive them out, you’ve lost what you paid for anyway.   

The big question The big question is -How are you going to manage what you’ve acquired?

This is the most critical thing to consider. You’ve completed your deal, it’s gone through and you now have acquired a business in a foreign currency, now what?

Meet your expert – Rob Donaldson

Rob leads our corporate finance practice and regularly provides published opinions on private equity and economic issues. His work spans M&A, private equity and public company advisory, due diligence, capital markets, financial modelling and valuations