Cross-border M&A activity has emerged as a way to gain access to new markets and customers quickly. Cross-border M&A activity is increasing significantly with the shrinking of the globe. Foreign investors who have legal issues relating to cross-border M&A activities can contact Apolo Lawyers (Tel: (+84) 903.419.479) to be consulted.
Before conducting cross-border M&A activities, we need to learn about the definition of the cross-border M&A activity.
A cross-border merger explained in simplistic terms is a merger of two companies that are located in different countries resulting in a third company. A cross-border merger could involve a domestic company merging with a foreign company or vice versa. A company in one country can be acquired by an entity (another company) from another country. The local company can be a private, public, or state-owned company. In the event of the merger or acquisition by foreign investors referred to as cross-border mergers and acquisitions.
Several drivers create a considerable business case for cross-border M&A transactions. Saturation or slowdown in core markets and the need for diversification are the primary drivers. But regulatory uncertainty in home markets and high repatriation costs of overseas earnings, technology and productivity enhancement synergies are important drivers as well.
Cross-border M&A can also help you to expand your range of products or services, and in turn, market share. This can be incredibly important in the pursuit of new innovations and technologies to create new revenue streams and bolster existing ones.
Based on these general considerations, companies take the extra effort of cross-border M&A transactions only if they can achieve substantial rewards from the specific target. Historically, the most important reward was to diversify the revenue streams of companies; either in product diversification or geographic diversification (portfolio diversification).
A regulatory environment that ensures investment protection or generates substantial tax benefits is a meaningful reward that can be realized (favorable regulatory environment).
By entering a new market through acquisition, companies can aid cost efficiencies if it increases sales (cost synergies). Besides costs, new markets create access to new customers and allow to scale fast (scale efficiencies), whilst besides these key rewards, companies can realise other rewards like access to new talents, adding new distribution networks or securing new product technologies.
Some governments offer tax breaks following a merger or acquisition. Additionally, international revenue streams, or even the relocation of the headquarters of your company, can offer substantial tax perks. However, tax laws vary by region, so careful research or the help of an expert is recommended.
As the world economy becomes more and more innovative, you can gain a major competitive advantage by acquiring a foreign company that has technology that is patented.
Cross-border M&A continues to play an increasingly important role in the world economy. Direct foreign investment can help you solve big problems easily, such as accessing new technology, entering new markets, scaling quickly, and gaining desired talent. When considering a move into an international market, there will be extensive planning involved, so it is best to enlist the guidance of a cross-border M&A professional. This is especially important during the due diligence process. It is much more involved than domestic M&A deals and should be conducted early in the deal cycle to avoid missteps and potential deal breakers as soon as possible. It is also critical to have an experienced advisor to help you navigate tax differences, antitrust rules, product labeling changes, and cultural challenges. Having the right M&A expert in your corner is key to a successful deal and the future success of your company.
Increasingly, investors and private equity firms are taking advantage of the higher growth potential of emerging markets. While these high growth M&A markets often promise the greatest rewards, they also involve the most integrity risks:
Political stability and leadership uncertainty
Protectionist approach and political burdens
Bribery and corruption
Over-regulation
Scant protection of the economic rights of foreign investors.
Political scenario could play a key role in cross border merger and acquisitions, particularly for industries which are politically sensitive such as defense, security etc.
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Not only considering these aspects it is also important to concerns of the parties like the governmental agencies (federal, state and local), employees, suppliers and all other interested should be addressed subsequent to the plan of the merger is known to public. In fact in certain cases there could be a requirement of prior notice and discussion with the labor unions and other concerned parties. It is important to identify and evaluate present or probable political consequences to avoid any probability of political risk arising.
While undergoing the process of reviewing these concerns it could indicate that the potential merger or acquisition would be totally incompatible and hence it is recommended to not go ahead with the deal.
Tax matters are critical particularly when it comes to structuring the transactions. The proportion of debt and equity in the transaction involved would influence the outlay of tax; hence a clear understanding of the same becomes significant. Another factor to decide whether to structure an asset or a stock purchase is the issue of transfer taxes. It is very important to alleviate the tax risks. If the parties in the merger are well aware about the financial and accounting terms in the deal, it would aid in minimizing the confusion.
Due diligence forms a very important part of the M&A process. Apart from the legal, political and regulatory issues we discussed above there are also infrastructure, currency and other local risks which need a thorough appraisal. Due diligence can affect the terms and conditions under which the M&A transaction would take place, influence the deal structure, affect the price of the deal. It helps in revealing the danger area and gives a detailed view of the proposed transactions.
There are countless other issues as every deal has its own flavor and differences. But it is of course very important to identify and tackle those challenges to help close a deal.
Apolo Lawyers is a law firm with many years of experience in legal issues relating to merger and acquisition transactions, especially cross-border merger and acquisitions field. Clients who are conducting merger and acquisition transactions can contact Apolo Lawyers for:
Advice on the process of mergers and acquisitions.
Support due diligence process and intellectual property due diligence
Consulting for foreign invester about the regulations of tax law.
Advice on the notes when making M&A transactions, legal regulations and common risks when merging and acquiring businesses.
Consulting and representing in the negotiation process of merger and acquisition transactions.
For further information, please contact us: Apolo Lawyers via email at contact@apolo.com.vn or Hotline - (+84) 903419479 for the best legal advice and support.
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