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

Overseas M&A: Are There Risks? 8 Expert Tips for You !

Theoretically, a good merger and acquisition, an overseas merger and acquisition that can generate positive net cash flow, requires that the synergy (the additional value generated by the merged entity after the acquisition) is greater than the premium paid to the seller. As long as you follow these eight tips, you can avoid mines and not pay tuition fees that you should not pay.

Overseas mergers & acquisitions should not be bought just for the sake of buying : the source of synergy needs to be clearly identified

Where does the synergy come from? For example, the logic of advocating overseas mergers & acquisitions is to buy good products and technologies from the global market, including travel services, to graft them to domestic markets. Its source of synergy is revenue growth, because products have a larger market.

Fully estimate the difficulties and resistance in the integration process of overseas mergers & acquisitions

If the estimation of synergy is too optimistic and the difficulties in integration are not fully estimated, the final synergy will be reduced, but the high premium has already been paid, only the price of declining performance can be paid. For example, a company predicted through financial models before the merger that the synergy would be about US$1 billion, but after several years of integration, it found that there were many obstacles to achieving synergy.

Avoid clustering in overseas mergers & acquisitions, and try to avoid bidding wars

Research has shown that if you follow the trend of large-scale mergers and acquisitions, blindly cluster, your choice will be reduced, and synergy will also be reduced. In addition, chasing the same good company at the same time will cause prices to rise, so try to avoid bidding wars.

For example, "One Belt, One Road" and the BRICS countries such as Brazil and Russia will bring new opportunities. Brazil has a large population base, high per capita income, strong consumption power, and a very large market, which is a new direction for companies to seek high-quality enterprises and assets.

Seek small targets for overseas mergers & acquisitions

Research has shown that the larger the company's size, the worse its performance and the higher its risk.

Overseas mergers & acquisitions together with local private equity funds to acquire local companies

Local PE funds and industry funds are more familiar with local companies. By cooperating with them, bundling interests, and obtaining absolute control, companies can avoid mines.

Hire financial advisors who are familiar with local companies for overseas mergers & acquisitions

A large amount of data shows that professionals are very important. Financial advisors with branch offices in the locality have a full understanding of local traps, mines, and legal risks, which can help companies greatly reduce information asymmetry and make reasonable valuations.

Try non-control transfer of overseas mergers & acquisitions

Control also comes with a price! If you acquire more than 50% of the equity of the other party to gain control, the premium is basically over 30%. If you do not want absolute control, acquire less than 50% of the equity, only become its major shareholder, and only pay about 10% premium. For example, Fosun took the approach of first buying less than 10% of the shares to get two seats on the board of directors. When it found that it could not promote China's peripheral tourism strategy, it further acquired absolute control.

Try alternative forms of overseas mergers & acquisitions : joint ventures

Finally, you can try an alternative form of mergers and acquisitions - joint ventures. For example, the Chinese side controls 51% of the joint venture company, and the other side controls 49%. At this time, there is no risk of a high premium, and the same goals can usually be achieved as in mergers and acquisitions.

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