Cross border Mergers and Acquisitions or M&A are deals between foreign firms and national firms in the target country. This deal is such in which the assets and processes of the firms in different countries are combined to form a new legitimate entity.
Types of Merge and Acquisition for cross border
Merge and Acquisition for cross border can be classified in two types:
- Inward cross border M and A: This type involve an inward movement of capital due to the sale of a domestic company to a foreign investor.
- outward cross border M&A’s: involves outward capital movement for purchasing of a foreign firm.
In spite of these differences, inward and outward M&A’s are closely linked as on a whole M&A transaction comprise of both sales and purchase.
Factors that encourage cross borer Merger and Acquisition
- globalization of financial markets
- falling demand due to international competition and market pressures.
- seek new market opportunities since the technology is fast evolving
- geographical diversification which would result in exploring the assets in the other countries
- increase companies’ efficiency in producing the goods and service
- fulfilment of objective to grow profitably
- increase the scale of production
Effects of cross border merger and acquisition
Capital Buildup
cross border merger and acquisition contribute in capital accumulation on a long-term basis. In order to expand their business, it not only starts investment in plants, constructions and equipment’s but also in the tangible assets such as the technical know how skills rather than just the physical portion of the capital.
Employment Creation
From time to time it is seen that the Mand A that are undertaken to drive restructuring may lead to downsizing but would lead to employment gains in long terms. the downsizing is sometimes essential for the continued existence of operation.
Technology Handover
when businesses from different countries combine together when it sustains effects of transfer of technology, sharing of the best management skills and practices and investment in intangible assets of host country. this in turn lead to innovation and has an influence on the operation of the company.
Challenges faced by cross border M and A
There are certain challenges in terms of different economic, legal and cultural structures. They might face difference regarding There could customer’s choices, business practices, and the culture which could pose as a huge threat for companies to fulfil their strategic objectives. some of the challenges related to cross border merger and acquisitions are as follows:
Political Concerns:
Any political concerns that arise have a major role in cross bored merger and acquisition political situation has major role in cross border merger and acquisition, particularly for industries which are politically sensitive such as defense, security etc. it is also important to concern of the parties like governmental agencies employees, suppliers and all other interested should be addressed subsequent to the plan of the merger is known to public. There should be prior notice given and discussion whither labor unions and otter concerned parties. it is important to identify and evaluate present or probable political risk arising
Cultural challenges
this can be a huge threat to the success of cross border mergers and acquisition. there have been a lot of mergers that have faced failure due to cultural differences. when there is a cross border transaction there are issues that arise because of the geographical scope of the deal. Intercultural; disagreement is one of the major objectives behind the alliance I business should be well aware of the intercultural engenderment and prospects that come hand in hand with amalgamation process and prepare tier workforce to manage these issues.
Legal Consideration
companies wanting to merge cannot overlook the challenge of meeting the various legal and regulatory issues that thy are likely to face. hence before considering the deal it is important to Revie the employment regulation, antirust statue and other contractual requirements to be dealt with.
Tax and Accounting Consideration
Tax matters are critical particularly when it comes to structuring the transaction. The proportion of debt and equity in transaction involved would influence the outlay of tax hence a clear understanding of the same becomes significant. if the parties initiating to cross border Mand A are well aware about the financial and accounting terms in the deal, it would aid in minimizing the confusion.
Due Diligence
this forms a very important part of M and A process. Apart from legal, political and regulatory issues we discussed above there are also infrastructure currency and other local risks which need thorough appraisal. Due diligence can affect the terms and conditions under which the M and A transaction would take place, influence the deal structure, affect the price of the deal
Merger and acquisition services
The whole process of cross border merger and acquisition can provide great benefits to companies. Each and every process for merger and accusation is done is a proper order to have a business in a region with high economic power such as the United Arab Emirates.
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