A 2004 study by Bain & Company found that 70% of mergers failed to increase shareholder value.1 A 2007 study by the Hay Group found that more than 90% of mergers in Europe fail to reach financial goals.2 Regardless of the risks, companies continue to use mergers and acquisitions as a means to expand and diversify their holdings. In 2006, the annual value of global mergers and acquisitions exceeded US$ 4 trillion and international mergers alone accounted for US $1.3 trillion.3
While the volume of mergers and acquisitions quickly retreated due to the global financial recession, as the global economy slowly recovers, companies are increasingly eyeing global acquisitions as a means of leapfrogging competitors.
As before, the risks associated with any merger or acquisition are still very real and, in the realm of cross-border transactions, the risks become even greater. Here are ten tips to consider in a cross-border transaction.
1. Corporate governance differences
Be aware of any corporate governance practices that may be significantly different from US norms. Are shareholder consents required? Are written consents sufficient or is a physical meeting required? Are there relevant statutory notice periods? Do the shares need to be registered or is physical transfer sufficient? Furthermore, there may be domicile requirements to be taken into consideration. For example, a Swiss Aktiengesellschaft (public corporation) requires that a majority of the board members be Swiss nationals except in a few narrow exceptions.
2. Mechanical closing issues
The timing of the closing in an international transaction may become rather complex due to numerous moving parts combined with time zone complexities. Consider having the parties wire funds into counsels’ trust accounts prior to the closing to facilitate same day wire transfers, and having local counsel handle some of the closing logistics.
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