Mergers & aquisitions in 2015: The importance of cross-border M&A

As anyone who has been following the current financial news and macro economic developments knows, the recovery of the (International) M&A market has continued unabated in 2014 and led to the highest number of transactions in the first half of this year since the beginning of the financial crisis.

Merger and acquisition market is on the rise again
In a recent study conducted by Dutch IT magazine Computable with Mazars, 93 M&A IT transactions were recorded in the third quarter of 2014, surpassing the record of 74 transaction in Q4 2011.

This year, French companies were very active and responsible for the more prominent IT deals in the Netherlands with among others the acquisitions of TASS by Atran, Quintiq by Dassault Systems and the acquisition of Imtech ICT by Vinci Axians. Remarkable was also the sale of the German branch of ICT automatisering to Alten SA.

Cloud crossing borders
Dutch companies are also looking abroad. Bringing software and location independent services “to the cloud” are playing an increasing important role is this development. Operating in the cloud makes it attractive for many companies to look for complementary technology acquisitions outside the Netherlands.

Even Dutch HR software company Raet is looking to South America where it has recently bought HR cloud solution RH Pro.

More companies will follow this example in 2015!

Cross-border M&A
Cross-border M&A is becoming increasingly important which brings specific demands on the table for IT entrepreneurs and their advisors dealing with this.

Especially when it comes to the international SMB plus segment of the IT market within the EU there are still many differences related to local customs and culture.

Particularly in the areas of:

  • Methods to gather information in a preliminary phase
  • Readiness to share confidential data / share with others whom they do not know.
  • Method of approach directly or indirectly, media choice, language choice

This has consequences for the way in which the foreign party must be approached. Depending from which side and what role the party operates, namely from the buying or the selling side, a passive or an active role, different tactics and responses must be applied.

Active buy profile
Although the Dutch IT landscape is dense it can be classified without difficulties and is relatively easily accessible compared to foreign markets, it remains difficult for companies from neighboring countries to look for acquisitions without local professional assistance in the Netherlands. The subsequent process of information exchange and determining whether the company meets the international acquisition criteria is not without barriers and also of great importance in the buying process.

Foreign potential buy candidates therefore make selective use of local intermediaries and advisors who know the market and the local players well to secure that they achieve their objectives.

However in case of approaching foreign candidates that are for sale in the surrounding countries it is imperative to connect with a local advisor or broker well known in the IT Industry who can act as trusted party to open doors that otherwise will remain closed.

Moreover, the structure of private companies (legally) and the manner in which they are controlled have to be known. The financial reports must often first be converted and re-adapted to the information systems of the international buyer.

This can save a lot of time in follow-up projects in which valuation, price and transaction need to negotiated.

Passive sale profile
When a foreign buyer approaches a local sale target, the buyer is often of considerable size with international branches and already established in the Netherlands. This makes communication in an M&A transaction with the entrepreneur and the advisor easier. The danger looming here is that sellers are tempted to start interacting and negotiating themselves when a foreign party shows interest in them. They are often drawn into a quick deal without the professional assistance of a financial advisor and without sufficient looking around for other potential buyers. Moreover, the Dutch subsidiary was often previously purchased through an M&A transaction and the price paid often the maximum the international buyer wishes to pay in this region in the EU. Smaller add-on investments are often paid less and discounted in valuation.

Is there no Dutch branch office but a European Headquarters, then this has a different approach preferably under the guidance of an experienced advisor that knows the buyer and is particularly attentive and familiar with the usual M&A process of the international buyer. Here again, the combination of M&A consultant and entrepreneur is crucial for optimal results.

An introduction and presentation to the Board of Directors of the foreign company is always on the M&A agenda and should run smoothly otherwise the deal is off!

Active sale profile
When a potential foreign buyer is approached, the M&A advisor preferably has the lead and aligns the candidates on the basis of the client profile and matches the buyers requirements.

If the M&A consultant in terms of project approach and valuation method knows the international buyer, this can be of great value during the sales process.

Sometimes it can be useful to also enable an International M&A partner who is at home and well connected in the foreign target market and has good relations with the potential buyers.

After getting to know one another and the necessary information exchange, indicative bids are expected that after thorough evaluation must ultimately lead to the final choice of the most suitable buyer and a transaction that offers the shareholders and the company the most financial and strategic advantage.

The future of the company often also depends on the perspective that the Purchaser can offer to the existing management. It is up to the dealmakers to align the interests of buyers, sellers and executive management including key personnel.

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