Cross-Border M&A: The Power of Company Search
A recent survey by Deloitte found cross-border acquisitions and divestitures are becoming increasingly important strategy for corporate development. Cross border transactions are those in which the counterparts to a deal, typically a buyer and seller, are based in different countries. Roughly 75% of reported deal-making in 2021 involved target companies operating primarily outside the buyer’s country of origin. Moreover, in the past year, the ratio of companies interested in cross-border transactions was nearly 6 times that of companies focused on domestic deals.
In our 50 years of experience as company search specialists, we also find cross-border transactions growing within major regions, such as Europe and the Americas, as well as across continents. The forces driving this trend are likely to intensify in the coming years, including product/market diversification, geographic diversification of the sources for revenues and profits, accessing new technology, achieving sustainability commitments, and other strategic imperatives.
Even with de-globalization of the world economy due to security risks and the supply chain problems from the pandemic, cross-border transactions will remain an attractive corporate development strategy for achieving extraordinary growth and profitability.
That said, strategic buyers and financial investors will focus their searches on regions and countries with acceptable long-term political and economic risks. Notably, between 2020 and 2021, Deloitte found increased buyer interest in cross-border transactions with targets based in Europe and the Americas (excluding the US) along with decreased interest in targets based in Africa-Middle East and Asia Pacific regions. In the latter case, the decrease reflects to some extent renewed interest in local sourcing.
Achieving strategic growth aspirations requires companies develop or access the distinct capabilities for identifying actionable acquisition targets and completing cross-border transactions. These capabilities include familiarity with legal systems and business practices, along with cultural attitudes and languages, that would not be required for a company focused solely on domestic transactions.
Failing to build such capabilities will expose a company to the risk of becoming more and more dependent on organic growth in their domestic markets. Over time, this dependency may erode a company’s competitive position especially with respect to faster growing and more diverse global competitors.
Our firm was founded on the concept of company search for industrial companies. Company search refers to the systematic identification of potential acquisition targets with a strong fit strategic, organizational, operational, technological, and cultural fit with our client.
Company search is about finding the “right” acquisition targets with which a good faith transaction can be developed through direct contact by experienced dealmakers with pertinent industry knowledge. As our founder Bo Hjelt emphasized to his partners, the right acquisition targets are in most cases not for sale. To make strategic acquisitions, our partners needed the industry experience and interpersonal skills to have access to owners or other decision-makers within a target company.
They also needed to establish rapport and trust, and to exemplify credibility for promoting a business combination to the owners of a target acquisition. In composing our search teams, we continue to this day to blend industry professionals, very experienced strategic consultants, country managers, and investment banking specialists. For cross-border transactions, this combination provides the needed capabilities for identifying actionable acquisition targets and promoting proprietary transactions with them. Such capabilities enable CDI Global to navigate the special circumstances and requirements of completing successful transactions in more than 30 countries around the world.
Company search offered our clients a business model that could free them from dependency on bank auctions or random inquiries from potential sellers. This is as important today as it was 50 years ago when we helped European companies diversify their geographic footprints with the formation of the economic union. Competitive intensity for finding and closing good transactions has never been greater than it is today with so many strategic buyers and financial investors looking for deals. The distinct challenges of successful cross-border dealmaking make it even harder to achieve successful closings. Nonetheless, company search offers a proven approach to being successful in driving a sustained and proactive cross-border acquisitions program.
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By: Jeff Schmidt, Executive Managing Director and Chief Executive Officer