Cross Border Mergers and Acquisitions over the years – A Critical Study
January 22, 2022
Over the last few decades, the globalization of business has created a global search for competitive advantage. As a result of the challenges of gaining scale in a quickly consolidated global economy, companies have followed their consumers who are becoming worldwide. Globalization has sparked an unprecedented spike in cross-border merger and acquisition activity, thanks to a mix of factors including increased deregulation, privatization, and corporate restructuring. Mergers and acquisitions across borders have become commonplace in the global commercial scene.
The term “cross-border M&A,” sometimes known as “overseas merger and acquisition,” refers to a transaction involving two or more companies situated in separate countries. The assets and operations of the merging companies are combined in this agreement in order to form a new legal entity. It results in a local company’s assets and operations being transferred to a former company, with the former becoming an affiliate of the latter. M&A is a strategy for a company’s expansion and increased shareholder value. As a result, it is an important part of a company’s arsenal. A cross-border M&A is when a corporation looks for targets in another country and in particular, it can serve as a springboard for a company seeking long-term growth and prosperity. On this premise, cross-border M&A can be divided into two categories: inbound, where foreign companies invest in India, and outbound, where Indian companies invest abroad.
Laws applicable over Overseas Mergers and Acquisitions
The laws that regulate cross border mergers and acquisitions in India are as follows:
Given that many domestic enterprises in many emerging economies exaggerate their capabilities in order to attract M&A, international corporations must conduct due diligence before entering into an M&A agreement with a domestic firm. This is why many overseas companies seek the advice of management consultancies and investment banks before embarking on an M&A transaction.Cross border M&A has many benefits as follows:
Elevation in Capital Cross-border mergers and acquisitions greatly increase a company’s capital, allowing it to operate more smoothly in the long run. It permits the new business to extend its activities as needed, purchase additional land, purchase additional facilities and machines, enhance its products and services, and much more. It also enables businesses to exchange intangible assets including technology and intellectual property such as trademarks, copyright, and patents.
Generation of Employment opportunities Companies can eventually start recruiting additional people as a result of cross-border mergers and acquisitions. Companies formed as a result of cross-border mergers and acquisitions create additional job possibilities in the long run as they extend their activities.
Technology Exchange When two companies merge or acquire each other, their technical know-how is also shared. They can exchange their management and operational plans, intellectual property rights, risk management, planning tactics, and so on. This leads to increased invention and product creation in the host country, both directly and indirectly.
In addition, it facilitates faster and easier entry into new markets, an increase of brand recognition across many regions, and the acquisition of a competitor. By expanding sales, a company might become more cost-effective by acquiring a new market. Furthermore, new markets provide a fresh client base and aid in speedier scaling.
As a result of these risks, acquiring organizations may need to rethink their risk perceptions and traditional due diligence processes in order to meet both common and unique risk concerns associated with cross-border M&A transactions. Common risk variables to consider include national and regional tax laws; the target’s availability, accuracy, and reliability; the company’s financial information; the country’s political stability, and the target’s compliance with needed rules.
According to the survey conducted by the Economist Intelligence Unit in 2008, although weak infrastructure, regulatory obstacles, and interdepartmental fighting will limit the pace of opening in many areas, India’s potential to attract more FDI inflows is immense. Infrastructure, energy, telecommunications, information technology, and insurance are projected to be the most attractive industries for foreign direct investment. Producers and assemblers of automobiles and automotive components, as well as biotechnology companies, are re-evaluating India’s potential. The availability of a trained, English-speaking workforce has attracted major investment, notably in the IT sector. Despite the perceived risks of investing in this region, the vast amount of M&A activity indicates that the projected return is substantially higher.
Effect of the Pandemic on Mergers and Acquisitions
When successful industrial restructuring leads to improved efficiency without undue market concentration, cross-border mergers and acquisitions can pay off in terms of corporate performance and profitability, as well as benefits for home and host nations. The benefits of such mergers and acquisitions are becoming increasingly intangible, manifesting themselves as economy-wide spill-over effects. They can assist in the revitalization of failing businesses and local economies, as well as the creation of jobs, through the restructuring process, technology acquisition, and product development. In the international market, Indian enterprises have a substantial presence. Their acquisition and merger plans are aimed at strengthening their position in the worldwide market.
India is no longer seen as a submissive country, but as a strong and developing economy in the globe, owing to this trend of Indian corporations acquiring foreign companies. The rising involvement of Indian enterprises in global markets, particularly in the United States, reflects not only the maturity of Indian industry but also their level of participation in the globalization process. Moreover, in the COVID times, corporate mergers and acquisitions have seen a tremendous transformation as a result of the ongoing pandemic difficulties, opening the floodgates for strategic agreements — whether mainstream, cross-border or cross-sector. Mergers and acquisitions are inherently exploratory processes for new business prospects. M&A possibilities have changed in the post-COVID world, with positive government action, a noticeable buyout stock market, and a generally stable banking sector providing a favorable atmosphere.