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Last month, Arrowpoint Advisory's Daniel Domberger participated in a Virtual Roundtable discussion on the 'Known Unknowns' of cross-border M&A organised by ACG Global and Navatar. Daniel offered insights on the state of play alongside M&A experts from across the industry, including spokespersons from OpenGate Capital and Genesis Capital.
The panel discussed key trends such as increasing cross-border activity, the pressures of global economic and political uncertainty, and the best methods to leverage external advisors and work with intermediary agencies.
The discussion focused on some of the technical and, indeed, cultural problems that face firms looking to grow through merger and acquisition which stem from a lack of understanding of local practices. This means not only comprehending the intricacies of regional regulations and economic tendencies, but more broadly, knowing how individuals across the world go about their business.
The panel spoke in depth about the often-overlooked 'valuation of culture', which covers everything from knowing that some countries don't talk business over lunch while others won't discuss arrangements by phone , it's all part and parcel of the working practices of cross-border M&A specialists.
Hunger for growth
The panel also delved into the driving forces behind growing demand for M&A despite the global backdrop of growing political and economic uncertainty. The spurt in M&A activity seen in the past year is a product of firms seeking to achieve challenging short-term growth targets in a low growth environment. Firms are having to look far and wide to expand profits in new regions and markets and M&A is a way to accelerate this.
Investors' hunger to deploy capital can also act as an impetus for aggressive acquisitions - Private equity houses have raised unprecedented levels of funding and are under pressure to spend it, pushing up valuations for attractive, high-growth businesses, wherever they may be based.
At the same time, businesses across the world seem to be downplaying the tumultuous events associated with Brexit and Trump's presidency, instead focusing on the relative stability of these markets on a global stage.
Finally, the panel questioned whether too much attention is being given to the importance of currency fluctuations as the driving force for acquisitions. As Daniel argued, if it's an acquisition target is not already of strategic interest, a fall in price will not suddenly make it any more attractive, that's opportunism, not strategy.
A decline in the target currency isn't a one-off windfall gain, it means its ongoing profits, and subsequently return on investment, would be worth less in the buyer's currency as well. Political stability is the biggest investment driver, rather than currency, in which European and North American markets lead the way. Ultimately, M&A will always be driven by that need for growth.
To request our latest Global Acquirer Trends report which focuses on M&A activity around the globe and tracks where are international buyers coming from, please contact Rosemarie Lamanno.