prpri Critical Analysis of Cross-Border Mergers and Acquisitions A Critical Analysis of Cross-Border Mergers and Acquisitions in a Global and Regional Perspective


The Globalisation of business over the past decades has spawned a search for competitive advantage that is worldwide in scale. Companies have followed their customers who are going global themselves as they respond to the pressures of obtaining scale in a rapidly consolidating global economy. In a combination with other trends, such as increased deregulation, privatization, and corporate restructuring, globalisation has spurred an unprecedented surge in cross border merger and acquisition activity. Cross border Mergers and Acquisition have become fundamental characteristics of the global business landscape. Even Mergers of companies’ with headquarters in the same country while usually not counted as cross border are very much of this type. In spite of the huge volume of activity in the cross border Merger and acquisition market place, an inescapable fact emerges when these are examined closely .What makes particularly impossible in cross border deals are the inherently greater challenges of melding country cultures, communication across long distances, dealing with misunderstandings arising from different business norms and even fundamental differences in management styles. This article put forth understanding the problems and opportunities of cross border mergers and acquisition thereby enforcing its significance in understanding most mergers and acquisition, and indeed in understanding the nature of global strategy.


Acquisition, Corporate restructuring, Deregulation, Globalisation, Mergers, Privatisation, Unprecedented surge.


Cross-border mergers and acquisitions have shown tremendous growth over time primarily due to a desire to circumvent tariffs and nontariff barriers arising from arms-length international trade and taxes; to obtain new options for financing; to access technology; and to distribute research and development costs over a broader base. Several factors put in place to moderate this growth include protecting key industries, limiting controlling interest levels, and restricting remittances of profits and dividends. We need to focuses on cross-border mergers and acquisitions (M&A), and their fmancial and economic (both macro and micro) underpinnings, which affect their direction and magnitude. In general terms, empirical analysis supports the fact that both host countries and the foreign country’s stock and bond prices are major causal factors that influence cross-border mergers and acquisitions.1A company must have a clear vision and strategy as to why it should expand globally. The due diligence and analysis that is required will make it easier to find the right M&A target in a foreign market that matches the buying company’s profile, and one that can be successfully integrated. It’s common to see companies bring in independent advisors to support M&A activities at this stage, and even earlier, as these advisors are not tied to the success of the deal and can provide their expertise throughout the lifecycle.


Cross-border acquisition is when one company acquires a company that is based on a different country. Cross-border M&A can help companies to expand their operations around the world without having to start from the ground up, although there are certainly challenges facing both the acquirer and the acquired company.


A company in one country can be acquired by an entity (another company) from other countries. The local company can be private, public, or state-owned company. In the event of the merger or acquisition by foreign investors referred to as cross-border merger and acquisitions will result in the transfer of control and authority in operating the merged or acquired company. Assets and liabilities of the two companies from two different countries are combined into a new legal entity in terms of the merger, while in terms of acquisition, there is a transformation process of assets and liabilities of local company to foreign company (foreign investor), and automatically, the local company will be affiliated. Since the cross border M&As involving two countries, according to the applicable legal terminology, the state where the origin of the companies that make an acquisition (the acquiring company) in other countries refer to as the Home Country, while countries where the target company is situated refers to as the Host Country.

In corporate merger, the headquarter of the new company can be in two states, for instance, on the merger between the Dutch Royal Shell, where the company’s headquarters are in The Hague, Netherlands, with its registered office at the Shell Centre in London, United Kingdom. The headquarter can also be in a state of Home country, such as the merger between Daimler-Benz AG with the American automobile manufacturer Chrysler Corporation (now so called Daimler AG on October 5th , 2007, where the company headquarter is in Stuttgart, Germany.


The trend of increasing cross border M&A has accelerated with the globalization of the world economy. Indeed, the 1990s were a “golden decade” for cross border M&A with a nearly 200 percent jump in the volume of such deals in the Asia Pacific region. This region was favoured for cross border M&A as most countries in this region were opening up their economies and liberalizing their policies, which provided the much, needed boost to such deals. Of course, it is another matter that in recent years, Latin America and Africa are attracting more cross border M&A. Further, the fact that Latin America is being favoured is mainly due to the rapid growth rates of the economies of the region.?


Having said that, it must be remembered that cross border M&A’s actualize only when there are incentives to do so. In other words, both the foreign company and the domestic partner must gain from the deal as otherwise; eventually the deal would turn sour. Given the fact, that many domestic firms in many emerging markets overstate their capabilities in order to attract M&A, the foreign firms have to do their due diligence when considering an M&A deal with a domestic firm. This is the reason why many foreign firms take the help of management consultancies and investment banks before they venture into an M&A deal. Apart from this, the foreign firms also consider the risk factors associated with cross border M&A that is a combination of political risk, economic risk, social risk, and general risk associated with black swan events. The foreign firms evaluate potential M&A partners and countries by forming a risk matrix composed of all these elements and depending upon whether the score is appropriate or not, they decide on the M&A deal. Moreover Cross border M&A also needs regulatory approvals as well as political support because in the absence of such facilitating factors, the deals cannot go through.


If we take some recent examples of cross border M&A deals, the Jet-Etihad deal and the Air Asia deal in the aviation sector in India are good examples of how cross border M&A deals need to be evaluated . For instance, there is both support and resistance to the Jet-Etihad deal as well as for the Air Asia deal. This has made other foreign companies weary of entering India.On the other hand, if we consider the cross border M&A deals in the reverse direction i.e. from emerging markets to the developed world, the Chinese oil major had to encounter stiff resistance from the US Senate because of security concerns and potential issues with ownership patterns. Of course, the recent Unilever takeover of its subsidiaries around the world is an example of a successful deal. The clear implications of these successes as well as failures is that there must be a process that is structured and standardized in each country and by each firm on how to approach the M&A deal. Otherwise, there are chances of hostility creeping into the process and vitiating the economic atmosphere for all stakeholders. More than this, the due diligence must be carried out before any such deals are considered.


Generally it has been observed that cross border merger and acquisitions are a restructuring of industrial assets and production structures on a worldwide basis. It enables the global transfer of technology, capital, goods and services and integrates for universal networking. Cross border M&A’s leads to economies of scale and scope which helps in gaining efficiency. Apart from this it also benefits the economy such as increased productivity of the host country, increase in economic growth and development particularly if the policies used by the government are favorable. Let’s look at those effects in detail.

7.1.Capital build up:

Cross border merger and acquisitions contribute in capital accumulation on a long term basis. In order to expand their businesses it not only undertakes investment in plants, buildings and equipment’s but also in the intangible assets such as the technical know-how, skills rather than just the physical part of the capita1.

7.2.Employment creation:

Sometimes it is seen that the M&A’s that are undertaken to drive restructuring may lead to downsizing but would lead to employment gains in the long term. The downsizing is sometimes essential for the continued existence of operations. When in the long run the businesses expand and becomes a successful it would create new employment opportunities.

7.3.Technology handover:

When companies across countries come together it sustains positive effects of transfer of technology, sharing of best management skills and practices and investment in intangible assets of the host country. This in turn leads to innovations and has an influence on the operations of the company.


Looking at the underlying dynamics cross border merger and acquisitions are quite similar to that of domestic M&A’s. But because the former are huge and international in nature they pose certain unique challenges in terms of different economic, legal and cultural structures. There could be huge differences in terms of customer’s tastes and preferences, business practices, the culture which could pose as a huge threat for companies to fulfill their strategic objectives. In this scenario this article discuss these issues and challenges briefly.

8.1.Political concerns:

Political scenario could play a key role in cross border merger and acquisitions, particularly for industries which are politically sensitive such as defense, security etc. “Not only considering these aspects it is also important to concerns of the parties like the governmental agencies (federal, state and local), employees, suppliers and all other interested should be addressed subsequent to the plan of the mergers is known to public. In fact in certain cases there could be a requirement of prior notice and discussion with the labor unions and other concerned parties. It is important to identify and evaluate present or probable political consequences to avoid any probability of political risk arising.

8.2.Cultural challenges:

This could pose a huge threat to the success of cross border merger and acquisitions. History has seen huge mergers that have failed because of the cultural issues they have had. When there are cross border transactions there are issues that arise because of the geographic scope of the deal.Various factors such as differing cultural backgrounds, language necessities and dissimilar business practices have led to failed mergers in spite of being in the age where we can instantly communicate. Research proposes that intercultural disagreement is one of the major pointer of failure in cross-border merger and acquisition. Hence irrespective of what the objective behind the alliance is businesses should be well aware of the of the intercultural endangerment and prospects that come hand in hand with the amalgamation process and prepare their workforce to manage these issues.In order to deal with these challenges businesses need to invest good amount of time and effort to be well aware of the local culture with the employees and other concerned parties. It is better to over communicate and conforming things tirelessly would be the key.

8.3.Legal considerations:

Companies wanting to merge cannot overlook the challenge of meeting the various legal and regulatory issues that they are likely to face. Various laws in relation to security, corporate and competition law are bound to diverge from each other. Hence before considering the deal it is important to review the employment regulations, antitrust statute and other contractual requirements to be dealt with. These laws are very much part of both while the deal is under process and also after the deal has been closed. While undergoing the process of reviewing these concerns it could indicate that the potential merger or acquisition would be totally incompatible and hence it is recommended to not go ahead with the dea1.

8.4.Tax and accounting considerations:

Tax matters are critical particularly when it comes to structuring the transactions. The proportion of debt and equity in the transaction involved would influence the outlay of tax; hence a clear understanding of the same becomes significant. Another factor to decide whether to structure an asset or a stock purchase is the issue of transfer taxes. It is very important to alleviate the tax risks. Countries also follow different accounting policies though the adoption of International Financial Reporting Standards (IFRS) has reduced this to an extent; many countries have yet to implement it. If the parties in the merger are well aware about the financial and accounting terms in the deal, it would aid in minimizing the confusion.

8.5.Due diligence:

Due diligence forms a very important part of the M&A process. Apart from the legal, political and regulatory issues we discussed above there are also infrastructure, currency and other local risks which need thorough appraisal. Due diligence can affect the terms and conditions under which the M&A transaction would take place, influence the deal structure, affect the price of the deal. It helps in revealing the danger area and gives a detailed view of the proposed transactions. There are countless other issues as every deal has its own favour and differences. But it is of course very important to identify and tackle those challenges to help close a dea1.


In spite of the issue we have discussed above the number of cross border transactions have increased quite radically over the past few decades. Though there have been a few economic crises and the situation has not been so conducive, it had not disturbed the upward trend in cross border M&A activity. More and more companies want to go global as they offer great opportunities which are comparatively cheaper option for companies to build itself internally. Looking at the M&A sentiments around the world it shows that the businesses acquisition emphasis is changing from domestic to cross border transactions because of the various benefits it offers .


Underlying motive for Cross Border M&As by large companies today can not be separated from the current globalization. Merger and Acquisitions can be functionally classified as:

i)Horizontal M&As (between competing firms in the same industry):

They have grown rapidly recently because of the global restructuring of many industries in response to technological change and liberalization. By consolidating their resources, the merging firms aim to achieve synergies (the value of their combined assets exceeds the sum of their assets taken separately) and often greater market power. Typical industries in which such M&As occur are pharmaceuticals, automobiles, petroleum and, increasingly, several services industries.

ii)Vertical M&As (between firms in client supplier or buyer-seller relationships):

Typically they seek to reduce uncertainty and transaction costs as regards forward and backward linkages in the production chain, and to benefit from economies of scope. M&As between parts and components makers and their clients (such as final electronics or automobile manufacturers) are good examples.

iii)Conglomerate M&As (between companies in unrelated activities):

They seek to diversify risk and deepen economies of scope.’

iv)Outlined, motives underlay the cross border M&As:

It strive to increase the profitability or revenue enhancement, cost reduction, market development, and power and efficiency gains. Some literatures take important note by conducting studies on connection of cross border M&As with some indicators as discussed in the following sub-sub chapter.


Over the past few decades, economic development has become globalised, and some trends indicate progress toward the development of international networks in all spheres. One of the trends is an increasing of Foreign Direct Investment (FDI). FDI is a long-term active participation from foreign country to other countries usually in the form of management participation, joint ventures, or transfer technology and know-how. FDI is divided into two types, namely inward and Outward FDI, both of which will result in net FDI inflow. Basically, the flow of FDI into a country can be done in two ways, through green-field investment, or by making mergers and acquisitions of local companies.

The relation between net FDI inflow with Cross Border M&As, is reflected by the complexity of companies in adoption with regional strategies and intricate network structures that have facilitated intra-regional economic interdependency. This condition might become one of the region’s attractiveness to international investors upon the growth of net FDI inflow. Afterward, it is important to build intergovernmental efforts towards creating the appropriate environment for the companies following the huge net FDI inflow. Thus, the increasing of net FDI inflow could be followed by several cross border activities, for example, Cross Border M&As in term of investment, and the expansion of operations.


The main motivation of doing Cross Border M&As is related to financial performance. In most cases, fmancial motive is more visible than other motives. It is related to the purpose of doing mergers and acquisitions, in which the decision is based on interests of the shareholders and the board of directors. In practice, financial motive is done by private equity, for instance, when they propose management buyouts (MBO) or sell the merged companies in the next couples of years in order to take advantage from the margin of increasing company’s value.

There are several activities underlying this motive:

* Economy of scale:

This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.

*Increased revenue or market share:

This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

*Resource transfer:

Resources are unevenly distributed across firms and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources.

*Geographical or other Diversification:

This is designed to smooth the earnings results of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholder. From these perspectives, financial motive arise as efficiency gains increased because Cross Border M&As intensify synergies between firms that in turn leverages economy of scale or scope. Furthermore, the diversification creates an opportunity for investors to develop their business in a larger scale, geographically or by type of business. Thus economically, this circumstance might create gain in value and efficiency.


Strategic motive is a more complex motive behind Cross Border M&As, it might change the market structure and as such have an impact on companies profits, moreover, it might even be reduced to zero, this is the so-called merger paradox. In general, the aim of this motive is to eliminate double activities in integrated companies due to enlarge economics of scale, for instance, by creating new supply chains or diversity of product, and extending market share. Practically, this motive can be as follow:

  • Cross-sel:

For example, a bank buying a stock broker could then sell its banking products to the stock broker’s customers, while the broker can sign up for the bank’s customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.

  • Synergy:

For example, managerial economies such as the increased opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts.

Usually Strategic perspective of Cross Border M&As is derived by technological, regulatory, and to some extent also financial consideration, it can be explained by the fact that most of this motive is conducted through horizontal merger of companies, whereas integrated functions (eliminating double activities, i.e. in Research and Development function) are an important factor in companies’ decisions to engage such merger or acquisitions.


Cross border merger and acquisitions are of two types Inward and Outward. Inward cross border M&A’s involve an inward capital movement due to the sale of an domestic firm to a foreign investor conversely outward cross border M&A’s involves outward capital movement due to purchase of a foreign firm. In spite of these differences, inward and outward M&A’s are closely linked as on a whole M&A transactions comprise of both sales and purchase.

Every one will be wondering why firms go for cross border merger and acquisitions or what induces them to leave their home country. Well there are various driving forces which differ across sectors. Few factors which generally encourage firms for cross border M&A’s include:

  • Globalization of financial markets;
  • Market pressures and falling demand due to international competition;
  • Seek new market opportunities since the technology is fast evolving;
  • Geographical diversification which would result in exploring the assets in other countries;
  • Increase companies efficiency in producing the goods and services;
  • Fulfillment of the objective to grow profitably;
  • Increase the scale of production;
  • Technology share and innovation which reduces costs.

These factors have been supported with government policies such as regulatory reforms, privatization which has led to access to targets for potential acquisitions. There have been innumerable merger and acquisitions in the past many who have been successful and others who unfortunately doomed. Recent trends show that in spite of economic uncertainties cross border merger and acquisitions are gaining importance and considered to be a vital tool for growth

Let’s consider this example from past of Daimler-Chrysler Merger which was a cross border M&A where Daimler-Benz was a German automotive company and Chrysler Corporation an American automobile manufacturer. This German-American marriage took place in the year 1998 and was considered as a “merger of equals”.47 As the word suggest cross border includes activities that take place between two different countries. Hence we could imply that the cross border merger and acquisitions are basically those transactions wherein the target firm and the acquirer firm are of different home countries. This deal is such in which the assets and processes of the firms in different countries are combined to form a new legitimate entity.”


The most fundamental motives to conduct cross border M&As is growth. Companies who seeking for expand have two options and should choose between internal growth and M&As growth. In the former case, if a company seeks to expand within its own business, the company could face that internal growth is not reluctant to be a satisfaction alternative. For instance, the company may find difficulty in maximising the opportunity because of a limited period of time, whereas internal growth may not suffice. As the company grows slowly, the competitors could respond very quickly and might be taken as dominant in given market share that a company may have dissipated over time by the actions of competitors. Thus to balance this condition, a company could choose M&As growth by acquiring company which has the resources, such as facilities, well established managements, and other resources available for additional competition purpose in the market.


Cross border M&As may become one alternative for companies who have been successful in their product within national market to expand revenue and profit. Whereas cross border M&As facilitates the companies with opportunities of tapping new market rather than pursuing further growth in internal market. For instance, cross border deals may enable companies to utilise country specific know how of the acquired companies, the staff, and also the distribution network they might have, these will provide more advantages for acquiring companies.Carrying this condition, the key element to be considered is whether such cross border M&As provide opportunity cost relate with the risk adjusted return. Opportunity cost is reflected by what can be achieved to the next base use of the invested capita1.

In European Union (EU), since the development of many areas of regulations to reduce cross countries barriers, cross border deals (including M&As) become significantly increased. In certain Asian markets, cross border deals is still secluded because of the resistance of some countries to foreign acquirers, however, there are signs that this condition will be changed rapidly. Within 1970-2000, according to many research and studies in global investments, international growth in economy has considerably effected by globalized world on corporations. The fastest way to achieve growth is through cross border M&As by acquiring other markets in international scope. Although, to enter new markets will certainly create additional risks for investors, many companies that have previously been involved in cross border deals (M&As’ waves) may become references for those who conduct such deals to reduce the risks. International growth of economy is marked by significant activities in many areas of industry such as automobile, telecommunication, and other corporate matters.


The purpose of company combinations through merger is to enhance its revenue or to reduce its cost through synergies. Revenue enhancing may be more difficult than cost reducing to achieve. However, the company combinations through revenue enhancements can produce new opportunity, for instance, sharing of marketing by enabling cross-marketing by each merger partner’s products with a broader line of markets, whereas each company could sell more products and services. This condition may lead to the comparative advantage between the two merged companies as a result the exchange from their conducts.

Cross-marketing also provides the opportunity to enable faster growth in revenue enhancement of each merger partner rather than exploiting their own market. Even though the sources of revenue enhancements are huge, but to achieve such enhancements is not an easy way. That was why, cost related synergies through cost reductions also become a very important in making a plan for merger deals.In general, the merger of two companies may have certain specific facilities and those are duplicative, for example, if both companies have their own distribution networks and research development division that could create similar result. These activities maybe pointed to be eliminated and build more effective and efficient synergy through company combinations’ scheme.Operating synergy in company combinations tend to look for cost-reduction synergies as a main source than revenue-enhancement. The reason lays on the fact that cost-reduction may come to decrease as a result of an increased of the size/scale of companies operations. Whereas revenue enhancements are vaguely referred to as merger benefits, but these enhancements usually are not clearly defined and companies sought to these purpose may find hardly quantified objectives.


Finally, there has been a huge outcry from civil society in almost all the emerging markets in recent months. This has been mainly due to public anger at crony capitalism and tiny elite cornering all the benefits. Therefore, the most essential condition before cross border M&A is actualized is that there must be regulatory scrutiny about the ownership patterns and the holding structures.0n a whole cross border merger and acquisitions can provide great benefits to companies and also increase its share price but as we saw there are a lot of factors which need to be taken into consideration to avoid any glitches. It is extremely vital for the business structures of both the countries involved in M&A transactions and learn from cases like that of Daimler-Chrysler. Most critical factors which separate the successful M&A transactions from the others, who fail, are thorough and planned preparation and commitment of time and other resources. Considering all this the prominence and importance of cross border transactions has clearly illustrates the business mindsets to access the global markets and grow.

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July 2021