Cross Border M&A Proves to be Complex for Even the Most Sophisticated Dealmakers

When it comes to cross-border deal activities, there’s more than meets the eye. In this SourceMedia video sponsored by CT Corporation, CT’s Ian Bone explains the role governments play in M&As, and what to look for when conducting due diligence on a foreign company. 



What roles do governments play in deal activity?

The role of government is very important when it comes to business and deal activity in particular. When we think about governments and cross border M&A, we are usually thinking externally from the U.S. One important thing to consider is that there are a lot of groups coming into the U.S. for cross border M&A. When that’s happening, you look at governments not just on a federal level, but also on a state level. One example being that Delaware is kind of the state for business—that’s how they’ve been branding themselves internally within the U.S. and externally to other countries at the SelectUSA conference and events like that. They have set up their chancery courts, regulatory processes, and their legal environment in general to be very business friendly.

Internationally there are other countries that are starting to take advantage not only of investment opportunities within that country but also within regional groups.

How do you conduct due diligence on a foreign company?

With due diligence, partnerships are always very important. This is an area where vendors are a lot more common. The entire due diligence process is so large and so overwhelming that to do it in-house is completely unfeasible within the timeframes that deals have to be completed. Things have gotten a lot quicker. You don’t have as much time to get things done, and with an international due diligence process, it’s even more difficult.

It’s hard enough when you’re just staying in the U.S. and are working with something that you understand. You can quickly go through what generally accepted accounting procedures are, how businesses normally run, and what compliance actually looks like.

But when you’re doing business internationally, it’s very important to have people that are actually in the country. Sometimes documents and other systems are not as automated as we might be used to in the U.S., so you actually have to track down forms and go through physical ledgers that are actually books with information. It helps to have people who are there, who have contacts within the different government or agencies, or who are in locations where you need to find something.

When you’re looking internationally, there are other kinds of due diligence that you might not normally think of such as reputational due diligence, political risk, anti-money laundering or know your customer (KYC) due diligence that could pop up and be a much bigger threat, not just to your financials but to your broader business as a whole

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