Understanding Potential Cross-Border M&A Risks [& How to Overcome Them]

Acquiring another company to bolster your organisation’s global reach is a standard business tactic. It is so common that over $2.5 trillion was spent globally on mergers and acquisitions (M&A) in the last year. Shockingly, that figure is only half of its peak of $5 trillion in 2021.

While companies invest heavily in M&A, there are still significant risks to any large-scale deal uniting two companies. Cultural challenges, clashing marketing strategies, and misaligned expectations can make the transition post-merger difficult and sometimes even fatal.

In this in-depth exploration of the risks of mergers and acquisitions, we’ll look closely at the most common cultural, financial, and regulatory conflicts in the M&A process and provide strategies for overcoming them.

Cultural Complexity: Navigating Cross-Cultural Risks in M&A

One of the unavoidable risks of M&A that comes with acquiring a company is the cultural differences between leaders and team members. It’s a common problem that comes with creating a global work culture. When expanding into new global regions, you may encounter issues like language barriers, differing work culture philosophies, and time zone differences.

“Culture” is an umbrella term for a company’s internal attitudes, beliefs, values, and rules. Culture is subtle and difficult to grasp until you’ve worked at a company for a moderate length of time. When two companies have clashing cultures, it may be due to differing expectations, incompatible communication styles, or divergent long-term or short-term goals.

According to a report by Deloitte, 30% of failed acquisitions and mergers collapse due to cultural issues. To navigate complex cultural integrations, it helps to have a global employment partner with expert local HR representatives who can help you cross the cultural divide between you and the leaders and employees of your target company.

Financial Perils: Anticipating and Addressing Monetary Challenges

Success for most companies relies on careful management of funds and resources, and mergers and acquisitions can be particularly draining financially. Therefore, it’s no surprise that financial issues are one of the most significant M&A risks, and poor financial planning has resulted in some of the biggest M&A failures in history.

When preparing for an M&A transaction, consider two of the most substantial financial risks of merger and acquisition strategies:

• Overpaying – Time pressures and financial stresses can occasionally cause companies to make rash decisions. A massive financial risk to a company is when they pay too much for a target company, either due to pressures from internal and external teams or a lack of time spent drafting a deal that fairly benefits both sides. 

• Insufficient due diligence – One of the biggest risk factors is when companies do not spend enough time on their due diligence in mergers and acquisitions. Thoroughly examining your target company’s finances, intellectual properties, and products is paramount to successful mergers and acquisitions. Failing to spot potential costly issues like pending litigations and fraudulent financing can cost your company significantly once you’ve acquired your target.

Historically, financial risks are the most potentially damaging to mergers and acquisitions. However, these risks come into play before finalising the agreement, meaning they are entirely avoidable with proper due diligence and support from your team.

Regulatory Roadblocks: Future Strategies for Compliance in M&As

Global expansions through M&A are exciting in theory, especially with recent technological developments that enable company employees to work remotely anywhere in the world. However, ensuring your company complies with local legal regulations is a nuanced process, especially as a newly multinational company.

Regulatory models in different regions are constantly shifting. You may have experts in the labour laws of your primary country of business, but expanding the reach of your employees and products means increasing the risk you take of violating regional regulations you were not aware of.

A global Employer of Record (EOR) partner specialises in compliance with local regulations in the countries where you need to hire employees or build your business. Aligning your company with such an asset can save you time and worry while your business grows internationally, along with several other advantages.

Mitigating Risks: Proactive Approaches to Ensure M&A Success

Knowing the risks involved in mergers and acquisitions is a great start. But to ensure the success of your M&A deal, your company needs to take proactive, protective measures to avoid cultural, financial, and regulatory risk factors.

Here are some of our expert tips for how to set your merger or acquisition up for success.

• Bolster your HR support – Quality HR professionals are well-versed in navigating cultural gaps to onboard and support new employees smoothly. You can ensure your merger starts on the right foot by enlisting an EOR or PEO specialising in the countries you plan to expand to.
  
  
• Leverage automation technology – A recent survey found that 27% of global CEOs are already utilising technology like artificial intelligence (AI) to process M&A transactions more efficiently. AI can help detect inconsistencies or potential risks in M&A agreements and can combine with human analysis for a thorough due diligence strategy.

• Seek top-quality legal expertise – Taking the time to consult legal experts in whichever areas you plan to expand to in your merger can save you valuable time and resources by helping you avoid regulatory risks.

For a universal partner in all of your M&A transaction needs, Omnipresent is the most valuable, knowledgeable, and competent collaborator in the industry that can support with your risk management efforts.

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