Blackstone Blog

Dec 05, 2012

Cross-Border M&A: Simple Concept, Complex Execution

In 2005, Thomas Friedman boldly proclaimed The World is Flat.  While it may be true in many senses, Mr. Friedman’s message conveys a false sense of simplicity.  In reality, this terrestrial pancaking process has drastically changed business practices and added substantial complexity to ‘dealmaking’ worldwide.

Any investment banker will tell you that cross-border M&A has always been challenging to execute.  Historically, the number of successful cross-border deals has paled in comparison to in-country deal activity.  However, as communications have become easier and cheaper in a wired world, there’s been a corresponding and noteworthy rise in international transactions.

Many companies, irrespective of domicile, have begun to view overseas growth as a critical component of their longevity.  Particularly in the technology sector, increasing competition has resulted in margin compression and industry fragmentation, which has hastened the need for companies to expand their geographic scope and presence – often by way of acquisition.

It goes without saying that the current macroeconomic environment has created interesting arbitrage opportunities for cash-rich buyers looking to capitalize on market inefficiencies. Currency movements, commodity price volatility, and geopolitical turmoil have enabled acquirers to capture strategically important assets at relatively attractive valuations.

But the actual process of locating, engaging, and transacting with a foreign counterparty can be much more challenging than simply screening a list of hieroglyphic company names. Understanding the cultural and social nuances of specific regions is critical for success, particularly given investors’ recent focus on areas of historical underinvestment such as Southeast Asia and Sub-Saharan Africa.

As a result, I've noticed that C-level executives are starved for well-informed global perspectives. Therefore, to be an effective strategic adviser for these clients requires an intricate network of well-informed, local professionals who can interact seamlessly to provide a holistic world view. For example, in recently advising a large, publicly-traded U.S. technology company on a diverse set of transactions, the Blackstone M&A team spanned 5 offices across 4 continents; this is rapidly becoming the norm rather than an anomaly.

Today’s business environment is burdened by a myriad of issues, ranging from economic reform to social upheaval.  The ability to comprehend, interpret, and adhere to local protocol, guidelines, and practices is of paramount importance.  The marketplace demands a unique set of professional skills that crosses time zones, country codes, and language barriers in order to effectuate increasingly complex transactions.

So, when it’s all said and done, the world may be flat, but by no means is it easier to navigate.

Sean Madnani is a Managing Director in Blackstone Advisory Partners L.P. He specializes in advising Blackstone portfolio companies as well as third party clients in Mergers& Acquisitions, particularly within the Technology sector.