Report Reveals Increasing Appetite For Cross-border Deals

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The volume of M&A transactions remained relatively flat in first quarter of 2012 when compared to recent periods

. However, an interesting observation is that M&A activity now (15,488 transactions) exceeds the transaction volume of FY 2007 (12,363) by approximately 25%. Remember, that FY 2007 was the peak of activity for M&A transactions.

A new survey by Clifford Chance has found that there is increasing appetite for cross-border deals, as businesses seek growth outside their home markets. The multi-regional report surveyed nearly 400 companies, each with revenues of more than $1 billion. Respondents were asked to rank their top strategic drivers and perceived risks to cross-border M&A.

The findings reveal that emerging, high-growth markets are the main focus for future growth. More than three-quarters of respondents are looking for growth outside of their established domestic markets, with over half (56 per cent) focusing on high growth economies. China, Brazil, South-East Asia and India were all listed in the top six regions considered to be prime M&A opportunities.

The survey also examined the top risks and barriers to cross-border M&A deals. Competition for assets ranked as number one, suggesting that there are currently more potential buyers than there are attractive targets and investment opportunities. Protectionism and restrictions on levels of foreign ownership was identified as a strong regulatory risk factor for cross-border M&A deals, particularly in South-East Asia, China, and the rest of Asia.
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Despite the growing need for companies to invest in new markets, cultural integration was also considered to be a significant risk factor affecting cross-border activity. More than half of the respondents said that they were discouraged from acquiring in new markets because of concerns about bridging cultural differences. Many companies surveyed admitted that they found the 'softer side' of deal-making challenging and just 44 percent ranked themselves as effective at handling cultural integration.

Given the current political, social and economic uncertainties and cultural challenges, particularly in growth markets, many organizations are adapting their strategies and looking towards joint ventures and partnerships as the preferred route to accessing new markets. The survey found that 37 percent of respondents selected joint ventures and strategic partnerships as their preferred deal structure.
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Sell-side companies looking to capitalize on the growth of cross-border M&A activity should consider setting up a virtual data room. Using a virtual data room to maintain business documents (and ensure they are up-to-date) allows a business to be deal ready so that they can drive the best deal. Advanced reporting tools enable you to monitor user activity during due diligence to help gauge buyer interest and keep the deal moving.

Outlook

The recent level of M&A deal activity suggests a robust marketplace for FY 2012 and beyond. We always have the spectator of economic concerns and the unsettled political environment to bring some headwinds to the marketplace. There are plenty of funds, both equity and debt, to fuel the high activity level. The uncertainty regarding the income tax rates should be a strong impetus for owners to seek liquidity strategies. However, we are hearing that this uncertainty and others are starting to cause business owners some hesitation in entering the M&A arena.

by: Patrick Richard

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