M&A Beyond Borders

The New Shape of Cross-Border M&A

By Philippe Craninx
Chairman, Moore Global Corporate Finance

Medium-sized companies seeking to grow have traditionally looked to near neighbours. Buying a local rival might seem natural and straightforward but when a business is well established in its home country, the logical next step is to look beyond its own borders.

Having a sizeable share of a home market creates a strong foundation. However, very soon it becomes obvious to the most ambitious entrepreneurs the growth that will make the real difference comes from expanding their geographic footprint, either as a buyer or as a seller.

At Moore Global Corporate Finance, we have seen a growing trend towards cross-border M&A and a few years ago we commissioned Vlerick Business School in Brussels to investigate this phenomenon. The result is our annual Compass Report and the picture it paints is fascinating.

The results over the past three years demonstrate how cross-border M&A – which now accounts for 35% of all deals in the mid-market between €10 million and €200 million – has its own distinct characteristics and drivers.

It has given the firms in our network unparalleled insights into how the aspirations of acquirers and sellers have been shaped by operating in a turbulent economic environment that has witnessed a once-in-a-lifetime pandemic and the outbreak of war on several fronts.

In recent years, the highest valuations tended to be in IT, healthcare and financial services. Then, last year, the size of transactions involving Australian minerals and metals concerns jumped significantly – driven largely by US companies seeking to secure supplies of the raw materials, like lithium, that are needed to develop green tech.

The US remains the home of the world’s most prolific acquirers but over the last five years Asian companies have also become increasingly prominent players in the cross-border mid-market.

To most business leaders the prospect of global expansion is both exciting and daunting. Cross-border M&A requires a different mindset and there are so many extra challenges that do not apply in domestic deals.

The interpretation of business law and the regulatory environment is different from country to country, while employment rights and workers’ expectations can vary hugely. Tax is another area where familiarity with local regulations is vital to avoid unpleasant surprises, not to mention the effects of currency fluctuations.

That is why we always counsel clients that they need to spend a lot of time getting the structure of the deal right: it is as important as thinking about price or how they plan to manage the target acquisition.

The key is to have cross-border teams of advisers with a broad range of skills – tax experts from both the investor’s and the target’s country need to talk to each other on a daily basis, while lawyers combine their local knowledge to devise the best structure in line with financial modelling.

When it comes to raising the finance, cross-border deals often benefit from tapping into different sources in different geographies. It might seem counter-intuitive to seek bank finance from outside your domestic market but the banking environment differs significantly between countries, which creates opportunities – and hurdles.

With cross-border transactions, there is always the golden rule about matching currencies between earnings and debt servicing. Other big considerations include the risk appetite of local banks and existing relationships with lenders.

One interesting new feature of deal funding that became apparent in our latest Compass report was the emergence of family offices and individuals as providers of cash and expertise. These are usually established by entrepreneurs who have made money by growing businesses internationally then selling them on – so they know the benefits and challenges associated with cross-border M&A.

In the last quarter of 2023 the average value of cross-border, mid-market deals was €49.3 million, almost 12% higher than at the start of the year. As economic conditions continue to ease, we expect cross-border deal flow to pick up in 2024 and beyond.

Armed with data from the Compass report, Moore Global Corporate Finance can identify potential obstacles and find a path to steer around them. Crucially, we use that insight to deploy advisory teams with the most appropriate skills to structure transactions that will fly and create enlarged businesses that meet the short- and long-term objectives of clients.