Insider Media Limited

Those of us who have worked in the corporate finance sector for some time will know that when we started most of the deals we worked on were national: UK seller to UK buyer. These days, almost every sale is marketed internationally and this is a trend which is set to continue.

International M&A and capital markets activity has certainly been accelerated by the financial crisis. Affected by the severe downturn, domestic capital markets have become much tougher on companies, prompting businesses to look further afield.

Most businesses now sell overseas, so management teams are thinking that if they already have contacts in a market, they should consider buying there to reach more customers or add new products to their mix.

The crisis has also prompted many to look across borders to raise capital on the public markets, in particular those that offer high liquidity.

There is speculation that a number of companies may seek listings in places such as Hong Kong. Similarly, the Toronto Stock Exchange has been one of the most active this year for IPOs. By the end of July 2010 it had seen 105 new issues, of which 26 were international.

Canada only has 33 million people, so it’s not a large market, but its banking system was not exposed to the mortgage-backed securities that brought down other markets. Companies are seeking a dual listing on the Toronto Exchange because it has remained liquid.

However attractive, cross-border transactions tend to be more complex than domestic deals. One key issue facing those with international merger or acquisition plans is how to identify the right targets or sellers.

This is where the international network of an accountancy and business advisory firm can really come to the fore. For example, Baker Tilly Deutschland, part of the Baker Tilly international network, is seeing mid-sized companies in Germany looking to get into discussions with overseas corporates and private equity houses.

Once buyers or sellers have been identified, cultural differences can cause headaches. Even if both parties can find a common language, issues can arise where, for example, the nuance of a particular word is not understood by someone who is not a native speaker.

There are also differences in negotiation style. In Japan, for example, the process is more of a courtship. It is not as aggressive as in the US, say, where businesses are viewed as tradable assets.

Even within Europe there are differences. In Germany and the Netherlands, owners are most interested in how much they will get for their equity. In markets such as the UK, company valuations tend to be based on pre-valuations and negotiations can often centre more on how the deal will be financed.

Legal issues also have the potential to cause problems. The broker-dealer regulations in the US are a case in point and are not well understood.

If you approach a US buyer without the necessary authorisation and the deal goes ahead, if it later turns sour, the buyer can pursue the adviser and the target’s former shareholders for restitution. That could be a very expensive mistake.

So how can companies minimise risk? The most effective means is to use advisers (including your due diligence teams if making a cross border acquisition) that understands the differences, on a cultural and legal level. You need one with local people in each country, who have access to the right information and can assess which risks most affect each transaction.

Indeed, the global nature of deals, coupled with the effects of the crisis, has changed the way advisers work. In today’s cautious environment, companies need to be more certain than ever that they have all their bases covered.

In the past, international M&A was focused on dealmaking. Now it’s more about how advisers across different markets can share knowledge to minimise the risks in a transaction. It’s much more about process.

Paul Johnson is accountancy firm Baker Tilly’s regional head of corporate finance and national head of due diligence.