A merger or acquisition (M&A) between companies can involve a range of scenarios. One of them is when the companies are headquartered in different countries. Whenever a business acquires or merges with another one headquartered outside its borders, it's considered a cross-border deal. This type of M&A is very common, especially once businesses reach a medium or large size.
State of the cross-border market
According to data from Corporate Finance, a total of 5,300 mergers or acquisitions took place in the Spanish market between 2017 and 2021. Of these, 41.4% were classified as cross-border because the buyer was based outside Spain.
In 2022, another study by Capital Corporate reported 354 cross-border deals, up 10.3% from 2021, although investment volume was shaped by the drop in interest rates, which significantly shrank the M&A market.
These figures from recent years, covering trends before and after the pandemic, highlight the globalization of mergers and acquisitions. On average, 4 out of 10 M&A deals are cross-border.
Cross-border opportunities
These mergers and acquisitions come with some shared advantages. The first and most obvious is international expansion, achieved much faster than it would be without an M&A process.
At the same time, this move abroad increases the size of the resulting company. That has an impact on revenue, business volume, number of customers, etc.
Two positive indirect effects also tend to follow: a boost to reputation and process learning. For the team and the domestic company, merging with or being acquired by an international company can have a positive impact on reputation. In addition, synergies between the two businesses always bring lessons that improve internal processes, in both production and management.
Cross-border challenges
Naturally, the challenges in these deals are greater than in a domestic M&A process, because of the legal and tax complexity of a cross-border merger or acquisition, where two different sets of regulations come together: the domestic rules of the target country and international rules.
In these cases, competition authorities closely scrutinize the deal to make sure it can't create a dominant position or monopoly in the market where the companies operate. In fact, Spain passed regulations, still in force, that tighten state control over strategic companies to protect domestic ownership from foreign investors.
Recommendations for tackling a cross-border deal
The first recommendation is to have in-depth knowledge of the country you're entering, both regulatory (tax, corporate, labor) and market-related (supply and demand, consumer habits, competitors). That's why, in cross-border deals, it's advisable to work with a local partner who not only brings that knowledge but can even lead the negotiations to overcome language barriers.
For example, the way contracts are drafted follows local contractual conventions that need to be taken into account. At the same time, financial statements must be prepared in accordance with international standards (IFRS, US GAAP, and others).
And as in any M&A deal, legal and financial due diligence is also necessary.
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