International implications

STEPHEN DUFFETY, managing partner at Baker Tilly’s East Anglia office, highlights the rise in recent years of international merger activity

A LITTLE over a decade ago, the vast majority of merger and acquisition activity in East Anglia was entirely UK based – UK seller to UK buyer.

These days, a significant proportion of local businesses for sale are marketed internationally, and this is a trend which is set to continue.

International merger, acquisition and capital markets activity has certainly been accelerated by the financial crisis. Affected by the severe downturn, domestic capital markets have become much tougher on companies, prompting businesses to look further afield.

Management teams are increasingly thinking that if they already have contacts in a market, they should consider buying there to reach more customers or add new products to their mix.

The economic crisis has also prompted many to look across borders to raise capital on the public markets, in particular those that offer high liquidity.

However attractive, cross-border transactions tend to be more complex than domestic deals. One key issue facing those with international merger or acquisition plans is how to identify the right targets or sellers.

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This is where the international network of an accountancy and business advisory firm can really come to the fore. For example, Baker Tilly Deutschland, part of the Baker Tilly international network, is seeing mid-sized companies in Germany looking to get into discussions with overseas corporates and private equity houses. Our firm plays a key role here because these organisations need an adviser with strong networks to provide introductions.

Once buyers or sellers have been identified, cultural differences can cause headaches. Even if both parties can find a common language, issues can arise where, for example, the nuance of a particular word is not understood by someone who is not a native speaker.

There are also differences in negotiation style. In Japan, for example, the process is more of a courtship. It is not as aggressive as in the US, say, where businesses are viewed as tradable assets.

So how can companies minimise risk? The most effective means is to use an adviser (including your due diligence teams if making a cross border acquisition) that understands the differences, both on a cultural and legal level. You need one with local people in each country, who have access to the right information and can assess which risks most affect each transaction.

Indeed, the global nature of deals, coupled with the effects of the crisis, has changed the way advisers work. In today’s cautious environment, companies need to be more certain than ever that they have all their bases covered.