International Deal Making: Assisting Acquirers

Tackling Uncertainty – International Assistance for Cross-Border Acquirers

Cross-border M&A slowed in the first half of 2019 as weak global growth and simmering trade tensions eroded eco­nomic confidence.

Major central banks are being forced to employ monetary easing in order to bolster their fragile economies, as the tariff war between China and the US builds. Significant political events such as Brexit in Europe and elections in Argentina have rocked financial markets, while escalating violence threatens to destabilise the Middle East.

It is no wonder then, that, in this environment of heightened volatility, cross-border M&A activity has suffered. As con­ditions deteriorate, acquirers must fully believe in the true value of a potential target before committing time, capital and resources to an acquisition.

Figures from Refinitiv, the financial data provider, back this up. Their figures show that global cross-border small-cap M&A activity (deals up to USD50 million in size) totalled just USD19.8 billion during the first half of 2019. This was a 12 per cent decrease compared to the first half of 2018 and the slowest first six months period for cross-border M&A since 2014.

The Refinitiv data also shows that total cross-border M&A activity (all deals) fell. A figure of USD509 billion during the first half of 2019, is a 45 per cent decrease compared to the first half of 2018 and the slowest opening six-month period for cross-border M&A since 2013.

M&A activity for European targets totalled USD305.6 bil­lion during the first half of 2019, a decrease of 56 per cent compared to first half 2018 levels. Asia Pacific deal making totalled USD337.7 billion, a 27 per cent decline and a five-year low.

The upshot of this trend is an increased emphasis on the acquisition process, balancing the economic risk with thor­ough insight and research prior to a purchase. Creating a comprehensive plan for negotiation and post-completion is also advisable.

Target identification has always been important, but it is even more crucial in a difficult environment. Once a business has settled upon expansion into a particular jurisdiction, they will need to use experienced advisors for effective target identification. These are professionals who know the culture as well as the law and can offer insights that are not available in a set of accounts. They will identify industry segments that offer opportunities for profit and competitive advantages or synergies with existing prod­ucts or services. Digging deeper, they can then assess a list of targets, refining it down using specific criteria.

Once a suitable acquisition target has been identified and contact established between buyer and seller, then due diligence is key. Significant amounts of research must be undertaken across legal, regulatory, financial and environ­mental areas, among others, before heads of terms can be agreed. The team employed to undertake due diligence is vital and the information they uncover will be critical in the decision-making and negotiation process.

The due diligence findings will have a significant bear­ing on the share purchase agreement (SPA) and inform the types of clauses contained within it. Warranties and indemnities cover many different eventualities, and an experienced legal advisor will ensure that any potential concerns flagged up by due diligence are addressed by the warranties and indemnities clauses within the SPA. These might range from intellectual property valuations, to financial record accuracy and regulatory compliance.

The following report contains submissions from IR Global members in 20 different jurisdictions across the world. They are all experienced in helping international clients to undertake acquisitions in their country, bringing their expertise to bear on a myriad of problems. In the pages that follow, they offer insight and advice on target identifi­cation, due diligence and negotiation of effective contracts. Their unique take on the opportunities and barriers sur­rounding M&A in their particular jurisdiction, should prove invaluable to potential acquirers.

We hope you find it useful.