What to consider when making an acquisition overseas

by George Clayson, Associate Director - Business Advisory, at Knill James

With so many great acquisition opportunities around and companies increasingly looking abroad for prospects, what should you consider when making an acquisition overseas?

When successfully executed, an acquisition can generate material growth and / or synergies and savings for a business. But there is no doubt that successful execution of cross-border transactions is harder to achieve than for a single country transaction, as there are many more issues to consider. The fact is that many deals fail to meet their stated targets, because there are so many more potential pitfalls when seeking to make an acquisition overseas.

To start with, there are the issues which would apply to a same country deal, such as:

  • Agreement over products / services
  • Obtaining synergies / cost savings
  • Post-deal integration
  • Resolving legal issues
  • Financing and funding issues
  • Overall deal structure

In addition, there are the following considerations for a cross-border multinational transaction:

  • Resolving country differences
    • Governance
    • Employees
    • Customer expectations
    • Regulatory environment
    • Culture
    • Taxation
  • Communicating across distance; language barriers
  • Fundamental differences in management style
  • IFRS and local GAAP differences

All these potential issues make an acquisition overseas highly complex, and lots of things need to go right for a transaction to be successful.

So what can be done to minimise the risks relating to an overseas acquisition?

It goes without saying that undertaking due diligence and using local advisers is key to understanding the legal, accounting and tax frameworks in which your target business operates. At Knill James we always encourage a due diligence approach where the commercial and operational aspects are "joined up" with the financial and tax matters. In our experience, such an approach is particularly important when making an overseas acquisition, as understanding the local commercial landscape and quickly establishing an integrated operating structure are key to maximising the value from a deal.

As such, consideration of the following is key:

Do you understand the cultural differences?

You should never underestimate how different local cultures are, even in continental Europe. There are many examples of frustrations and problems which could have been avoided through a mutual understanding of how or why things are done differently.

Do you understand the local market?

Take time to understand the local competition, differences in customer expectations and local emerging market trends. Only then can you properly assess the opportunity and develop a fit-for-purpose strategic plan. There are likely to be many differences between your existing market and the market you are looking to expand into. These differences need to be identified and a plan made to bridge them as early as possible.

Can you work with local management?

In many cases, especially if the acquisition is your first step into a particular location, you will be reliant on local management to implement your plans and drive the business forward post acquisition. The 'long-distance' nature of the relationship and possible language barriers only accentuate potential issues. It is therefore critical that you build a strong relationship with management, and that you can trust them to be the 'face' of your brand / products going forward. As always, communication is key.

Do you have a robust post-deal plan?

The first 100 days post acquisition are critical to the success of any deal. Where long distances are involved, they are even more important. You should plan to spend a significant amount of time on site immediately post acquisition. This will enable you to embed your strategy and working practices before local 'work arounds' become established.

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