Why Cross Border M&A Appeals To SMEs And Multi National Corporates

In our increasingly globalised world, national frontiers are becoming less and less relevant to ambitious businesses. Even owners of smaller business and medium sized companies (SMEs) are now looking beyond their own countries and assessing the possibilities of growth at an international level.

Evidence from business information firm, Thompson Reuters, suggests that by 2012 cross border transactions accounted for 36 per cent of all M&A activity worldwide. Furthermore data suggests that the practice has now become truly global, stretching from the more traditionally internationally focused countries in Europe and North America to the growing economies in Asia and Latin America.

Reasons for the growth in cross-border M&A

The greater ease with which companies can access new markets is the primary driver behind the growth of international M&A. In the past it was more difficult to expand overseas due to excessive red tape and regulatory requirements. Nowadays however, domestic governments are becoming more open to the idea of attracting foreign investment and are even offering incentives to overseas firms to invest in domestic businesses.

Another reason for the increasing international focus has been due to stagnating home economies. This can be clearly seen in the case of countries like Japan, a nation which has traditionally been reluctant to invest in foreign entities. Recently Japan has experienced an increase in overseas acquisitions due to the slow economic growth in the country and a strong currency. International businesses are now seen as a more attractive option than domestic ones and this has led to a change in approach.

Is cross-border M&A applicable to all businesses?

There is a perception that international transactions are only relevant to large multinational companies (MNCs) with significant resources at their disposal. However the reality is that cross border deals can benefit all businesses, regardless of size.

Mid-sized firms are becoming more aware of this and are looking at their options overseas. For example evidence from consulting firm, Grant Thornton, suggested that the number of firms that expected cross-border M&A to drive growth rose by 18 per cent in 2013 alone and had risen by 56 per cent since 2008. International alliances between mid-sized businesses have also become more common in recent years.

Advantages associated with cross border M&A

The increasing trend of firms looking to engage in international M&A is hardly surprising given the benefits associated with doing so and ongoing globalisation. The practice allows a business to expand into new markets through a company which already has an established base in the region. This is a lower risk alternative to expanding organically. Also, by incorporating an international element to its business, a company is less exposed to any unforeseen economic downturn in its home economy.

Comment

Given the increased ease of executing cross border transactions and the perceived benefits of doing so, it is likely that the trend in cross-border M&A will continue to grow and that we will see more companies of all sizes with an international connection in the future.