Jilian Consultants Co., Ltd.
Jilian Consultants Co., Ltd.

How to Do Overseas Mergers & Acquisitions?

For enterprises, it is indeed a shortcut to achieve expansion through the use of overseas mergers & acquisitions. It can be used as a booster for enterprise development, but the hidden risks are often covered by the "thriving" performance of the enterprise. Taking corresponding remedial measures, the company may therefore bear huge debt pressure, leading to mergers and acquisitions to "drown" all the achievements of the company.

In the process of overseas mergers & acquisitions, enterprises should consider the development of long-term strategies, weigh the pros and cons of various aspects, and make good use of the double-edged sword of overseas mergers & acquisitions on the basis of reasonably controlling the risks of mergers and acquisitions.

1. Strictly select targets for mergers and acquisitions and correctly evaluate the value of enterprises

In cross-border M&A activities, to control risks, the first step is to have a detailed understanding and comprehensive analysis of the international market and M&A target companies.

On the one hand, enterprises can hire overseas professional institutions to do due diligence in the early stage, including various assets of the enterprise, financial data, internal and external advantages and disadvantages, international economic environment, background of management personnel, etc.; on the other hand, enterprises can hire professional evaluation companies, Choose an appropriate valuation method, learn from the advanced model of successful mergers and acquisitions, accurately evaluate the value of the merged company, reduce valuation risks, improve the accuracy of evaluation, promote the smooth progress of corporate mergers and acquisitions and integration, and improve the feasibility of mergers and acquisitions.

2. Broaden financing channels, choose payment methods carefully, and pay attention to exchange rate changes

First of all, in order to control financing risks and ensure sufficient funds in the process of overseas mergers & acquisitions, the acquirer should continuously expand financing channels and innovate financing methods. Under the market economy environment, enterprises may consider conducting business cooperation with overseas enterprises and jointly participating in mergers and acquisitions, so as to reduce the financial pressure of mergers and acquisitions.

At the same time, the acquirer should optimize the financing structure, control the asset-liability ratio, and reduce financing risks. Before optimizing the financing structure, the enterprise should weigh different financing channels, methods, and structures from all aspects, have a comprehensive grasp of their advantages and disadvantages, reasonably allocate the assets, liabilities, and equity of the acquirer, and analyze its capital composition , debt maturity, etc., combine and match future cash flow, find weak links in future capital flow, optimize long-term and short-term debt amount and debt maturity, and ensure the scientific nature of financing costs.

Secondly, the overseas merger and acquisition party should also choose a scientific and reasonable payment method and payment time according to the actual operating conditions of the enterprise, and can combine cash payment, stock debt payment, and mixed payment with each other. However, the choice of payment method is often not determined by the acquirer unilaterally. The cash demand of the target company is also an important factor affecting the choice of payment method for both parties. Therefore, during mergers and acquisitions, both parties need to negotiate on payment methods, so that the acquirer can adjust its assessment of payment risks at any time in order to make a reasonable choice.

At the same time, the choice of payment time is also of great significance to the acquirer. Funds have time value, and the acquirer should choose installment payment as much as possible to delay the payment of funds, so as to reduce the short-term operating burden, ensure the normal operation of the enterprise, and prevent the enterprise from going bankrupt and liquidating due to excessive debt burden.

Finally, exchange rate changes are also an important factor that cannot be ignored in cross-border M&A activities. Changes in the exchange rate are affected by the economic trends of the two countries, the international economic situation and foreign exchange-related policies, which cannot be controlled by manpower. Therefore, when a company decides to carry out overseas mergers & acquisitions, it should always pay attention to changes in exchange rates and related policies, and take precautions in advance.

3. Promote asset "digestion" and enhance financial synergy

Usually, overseas mergers & acquisitions will face differences in personnel arrangements, management systems, financial systems, corporate cultures, etc. between the two parties. Therefore, successful mergers and acquisitions should realize the unification of the underlying assets and the original assets of the enterprise in the later stage, whether it is financial measurement or daily management.

For the acquirer, first of all, it should maintain a prudent attitude before the merger, reasonably assess the risk of mergers and acquisitions, weigh them against the synergies after mergers and acquisitions, and prepare in advance for various problems in the integration process of mergers and acquisitions;

Secondly, in the process of mergers and acquisitions, the acquirer should conduct an in-depth analysis of the potential risks of the underlying assets and set aside reasonable and sufficient impairment reserves to promote financial integration;

Finally, after the completion of overseas mergers & acquisitions, the acquirer can use the performance compensation agreement to speed up the integration process of the acquired companies and reduce the difficulty of integration.

At the same time, staff with rich knowledge and experience should be assigned to key positions, especially financial personnel, so that the acquirer can actively participate in the daily operation and management of the acquired company, realize financial integration on the basis of strategic integration, and then assist M&A decision makers to weigh financial synergy and integration risks, optimize resource allocation, strengthen asset management, regularly evaluate assets, clean up invalid assets in a timely manner, and promote the "digestion" of assets.