Cross-border Mergers and Acquisitions

Nov, 03 2020

M&A transactions can be concluded by companies within one or more countries. If both parties to the agreement work in the same state, the transaction is called national. When organizations are registered in different countries, we are talking about transnational or cross-border mergers and acquisitions. From a legal point of view, such agreements are more complex, they require compliance with many conditions, but they occupy an important place in the global economy, because they affect the global market.

Mergers and acquisitions play an important role in ensuring the flow of foreign direct investment. Therefore, it is not surprising that as the economy develops, multinational companies appear more often. If in 1939 there were only 30 such enterprises worldwide, by 1976 the number of transnational organizations reached 11 thousand. According to the official statistics in 2015, there were at least 82 thousand such enterprises.

Most multinational companies belong to the United States: 18%. In second place – Great Britain and France: 15% each of. Also among the leaders are Germany and Japan, and only 30% of the total number of TNCs come from other countries.

Key factors contributing to cross-border mergers and acquisitions are

  • Removal of barriers to foreign trade, formation of global practices of transnational enterprises, creation of fair regimes for foreign investors, and a General policy of simplification of international agreements.
  • Economic cooperation between countries, convergence of economic mechanisms and harmonization of legal and economic practices.
  • Simplification of state regulations affecting the economic sphere, gradual reduction of state control.
  • Reduce transportation and communication costs, supported by information technology; the ability to manage businesses from a distance thanks to technological advances.
  • Rapid economic growth in developing countries, an increase in the number of national markets ready to enter the international level.

If in the first half of the 20th century the parties had to meet in person to discuss the terms of an international agreement, now it is enough to include a conference in Skype. This greatly simplifies communication, allows you to conduct negotiations faster and more efficiently, and there are more and more qualified translators and negotiators who contribute to the popularity of multinational transactions.

However, cross-border mergers and acquisitions require participants to develop a well-thought-out strategy, anti-crisis measures and increased competitiveness. Not to mention that entering new markets always requires adaptation to their conditions and specifics. Despite all this, in 2019, enterprises concluded more than 13 thousand international transactions whose total amount exceeded a trillion dollars.

The growing number of cross-border transactions is linked to the globalization and progress of the economy. However, this is not the only factor contributing to the growing number of international agreements. An important role is played by accelerated technological progress and business security, which is guaranteed by international legislation.

Speaking of transnational mergers and acquisitions, you should pay attention to their features. At the conclusion of contracts, the following factors are considered:

  • increased risks related to cultural characteristics, national legislation, and the need to interact with institutions and institutions within several countries;
  • the need to verify information about the partner with whom the transaction is concluded;
  • difficulty in obtaining important corporate information from a foreign company;
  • contradictions between the legislation of a particular country and international law;
  • the likely dominance of certain areas and industries in this type of transaction.

Conducting a cross-border M&A transaction is a very extensive procedure, the key to successful implementation of which is careful preparation and professional execution of each stage. Otherwise, the company bears the risk of negative consequences, which may result in a decrease in production volumes, profitability, and loss of part of the profit.

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