What is Cross Border M&A?
They are basically those transactions wherein the target company and the acquirer company are of different home countries. This deal is such in which the assets and processes of the companies in different countries are combined to form a new legitimate entity.
Driving forces for Cross Border M&A’s
-Globalization of financial markets
-Market pressures and falling demand due to international competition
-Seek new market opportunities since the technology is fast evolving
-Geographical diversification which would result in exploring the assets in other countries
-Increase companies efficiency in producing the goods and services
-Fulfillment of the objective to grow profitably
-Technology share and innovation which reduces costs
Effects of Cross Border M&A
- Capital build up
Cross border merger and acquisitions contribute in capital accumulation on a long term basis. In order to expand their businesses it not only undertakes investment in plants, buildings and equipment’s but also in the intangible assets such as the technical know-how, skills rather than just the physical part of the capital.
- Employment creation
Sometimes it is seen that the M&A’s that are undertaken to drive restructuring may lead to downsizing but would lead to employment gains in the long term. The downsizing is sometimes essential for the continued existence of operations. When in the long run the businesses expand and becomes a successful it would create new employment opportunities.
- Technology handover
When companies across countries come together it sustains positive effects of transfer of technology, sharing of best management skills and practices and investment in intangible assets of the host country. This in turn leads to innovations and has an influence on the operations of the company.
Issues and Challenges
– Political scenario could play a key role in cross border merger and acquisitions, especially for industries which are politically sensitive such as defense, security etc.
– When there are cross border transactions there are cultural issues that arise because of the geographic scope of the deal
Trends in Cross border M&A
More and more companies want to go global as they offer great opportunities which are comparatively cheaper option for companies to build itself internally. Looking at the M&A sentiments around the world it shows that the businesses acquisition emphasis is changing from domestic to cross border transactions because of the various benefits it offers.
Summing It Up
On a whole cross border merger and acquisitions can provide great benefits to companies and also increase its share price but as we saw there are a lot of factors which need to be taken into consideration to avoid any glitches. Most critical factors which separate the successful M&A transactions from the others, who fail, are thorough and planned preparation and commitment of time and other resources.