Transnational Mergers and Acquisitions: How to Beat the Odds Of Disaster

Cross-border mergers and acquisitions (M&As) differ markedly from national deals, and require companies to develop the necessary skills to create value. Accenture has identified four key drivers of success for transnational M&As that focus on its special risks and opportunities, while forming an integrated process equally valid for national deals.

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Cross-border mergers and acquisitions (M&As) are booming as companies try to meet growth targets.

In this article for the Journal of Business Strategy, Accenture's Caroline Firstbrook argues that the growth in cross-border acquisitions is being fueled by several factors:

• A long period of restructuring has made companies cash rich and confident.
• Easy access to plentiful, cheap credit.
• Substantial industry consolidation has reduced the number of viable mergers and acquisitions targets at home.

In 2005, transnational deals increased by 58 percent in Europe, 21 percent in Japan and 68 percent in India.

The main driver for national deals is usually the achievement of economies of scale, whereas cross-border acquisitions are more often about growth.

Transnational deals provide:

• Immediate access to customers, products, brands, distribution channels and market knowledge.
  
  
• Opportunities for revenue growth based on:
  • The cross-selling of products.
  • Market- or technology-knowledge exchange.
  • Wider global coverage.
  • First-mover advantage, particularly in developing markets.

However, many find the prospect of acquiring or merging with a company in an unknown market quite daunting, and several high-profile disasters across diverse industries have fuelled this fear. While national mergers or acquisitions are not exempt from failure, cross-border transactions inherently represent a unique mix of opportunities and risks that management must understand and manage to ensure success.

Accenture has identified four key drivers for successful transnational M&As:

• Start with a compelling strategy with a clear strategic role for the acquisition, and identify types of companies best suited to that role.
  
  
• Understand the new markets including the culture, regulatory structure or competitive environment—or all three—to avoid costly mistakes resulting from overly optimistic assumptions for revenue growth or cost savings.
  
  
• Convey respect for employees of the acquired company who represent the most important aspect of the acquisition, bringing local market knowledge, customer and supplier relationships, technical capabilities, and the influence and reputation of management with employees—all essential to extracting value from the acquisition.
  
  
• Successful execution begins long before the deal is concluded and the effort required should never be underestimated, with much resting on the structure of the merger integration teams to ensure complex integration for maximum value extraction while daily operations continue.

Caroline Firstbrook leads Accenture's Corporate Strategy group in Europe, the Middle East and Africa.