Is it reasonable to make international acquisitions when you are an SME?

Although cross-border transactions are receiving increasing attention and becoming more important, global uncertainty remains a factor affecting the volume of M&A activity worldwide. But is it still reasonable to make international acquisitions when you are an SME?

The year 2021 has been marked by numerous economic and political initiatives here in Europe, the United States and Asia to revive the economy.

And halfway through 2022, we are seeing new changes in policies and practices in key markets.

Our survey of professionals and year-to-date results suggest that the volume of cross-border M&A in 2022 will be equal to or slightly lower than in 2021.

But M&A professionals are well experienced in knowing that statistics are not reality. The real issue lies in why, where, and how deals are being done now, as well as what to expect in the future.

In a series of articles on best practices from top professionals, we will speak to the factors that influence the decision to engage in cross-border transactions and the best process to maximize the expected results.

Over the past 5 years, we have witnessed an unprecedented transformation of not only large but also medium-sized companies.

The phenomenon started more than 10 years ago with investment funds that eventually completed successful international investment transactions.

As a result of these investments, the funds have steadily expanded their international portfolio.

Currently, in the last three years, about 50% of the money invested by the largest investment funds in Europe has been invested abroad and about a quarter of the companies owned by the funds are located abroad.

In addition to being a response to globalization, cross-border operations allow for a reduction of risks, especially political and environmental risks.

This is why entrepreneurs, including SMEs, are looking outside their home country.

For a long time, it was the prerogative of large companies, the acquisition of companies abroad now concerns the world of SMEs.

Some SMEs engage in cross-border mergers and acquisitions to support the expansion of sales networks, for example, and to significantly increase their turnover.

In other cases, SMEs are seeking to invest in areas outside their national borders, as a measure to reduce country economic and political risks and to diversify their portfolio.

Finally, other SMEs expand abroad to gain access to natural resources that are not available in their own country.

Ultimately, for most acquirers, cross-border M&A decisions are often multifaceted.

And while interest and participation in cross-border M&A is expected to continue to grow, the learning curve for new entrants to the market presents significant challenges for the uninitiated.

Closing deals is complicated. While cross-border transactions and investments present interesting growth opportunities, not all companies are able to handle an “international” situation.

Best practices for successful cross-border transactions

As the examples in the previous section show, cross-border considerations can add multiple layers of complexity to your M&A strategy.

The most successful acquirers do not enter the cross-border market alone.

They typically supplement their transaction team with experienced advisors who have a deep understanding of the transaction environment in the target country. Here are some things to consider:

Understand the opportunity in the context of the market.

A common recommendation in our operations at Actoria is to avoid thinking in terms of geographic regions when identifying targets.

When it comes to M&A transactions, generalizing in terms of “regional” concepts does not lead to the best conclusions.

For example, North African countries and the Middle East are often lumped together…

Many buyers think that the takeover process is the same in Morocco, Tunisia, the United Arab Emirates, Egypt or Israel.

This could not be further from the truth. The same rule of thumb applies to American countries.

It would be fatal to consider the countries of North and South America in the same way. The same is true of the countries of the East.

It takes expert advice to understand and navigate transactions in and between these countries.

Experienced professionals analyze each opportunity based on the economic, governmental, legal, business and cultural characteristics that complement the country in which it is located.

Essential knowledge can range from well-defined topics, such as legal requirements, to “softer” issues, such as the availability of certain resources (material, human,…) essential to the business.

Business practices, regulations, and accounting standards are different.

Therefore, you must be accompanied by international advisors and not your usual advisors.

You need to have people who have experience in these markets and you need to describe processes that are different.