July 2023 — By Anthony Sehnaoui
I once advised a PE-backed group on pan-European acquisitions. The hard-hitting CEO initiated our meetings with potential targets by declaring that he spoke “three languages: English, American and Texan and I sure hope you speak at least one of ‘em!”
Cross-border M&A clearly requires more preparation than a domestic transaction. Better planning. More careful integration. A proper cultural assessment. Most competent bankers can do the financial advisory bit skillfully, but ultimately, deals get done by people, not by boards or lawyers. Never underestimate the benefit of leveraging cultural sensitivities and language abilities on your deal team.
A few months ago, I had the pleasure of dining with a couple of old colleagues in Atlanta: one now chairs the Global M&A function at a leading law firm, while the other leads North American M&A for a major European group. We reminisced about one cross-border deal on which we collaborated, years ago, and all agreed that it was one of the most fun and challenging transactions of our careers.
The target had significant operations in France, the US and Mexico. I think we were all staffed on the deal team in part because of our proficiency in multiple languages.
English has long been the lingua franca of M&A, but the ability to communicate in the local language and pick up on cultural and behavioral nuances can - and did - have a significant impact.
The original company had been established in the Loire Valley (at the turn of the 20th century, if memory serves). Over time, it became one of the largest players in Europe in its niche. As growth slowed, the most logical option was to look at acquisitions in North America – the largest and deepest market in the world. By the time we were engaged to advise the parent on the divestiture, the target had added nearly 600 North American employees through acquisitions. They found an American manager who was a Francophile and figured out what made him tick well before the acquisition was completed. He eventually assumed the role of group CEO and integrated what had been three disparate subsidiaries into a global champion.
Acquirers evaluate targets by building a business case that focuses principally on operating and financial performance, strategic alignment, risk assessment, competitive dynamics and potential synergies. Cultural compatibility is not necessarily a requirement but caveat emptor! Assessing it is indeed critical.
Management teams don’t always have the confidence and the experience to chase targets outside their home markets, let alone an ocean away. Yet strategic M&A has never been so easy to execute across borders, particularly add-ons that pose fewer integration challenges than transformative deals.
