Throughout the recent economic downturn, cross-border M&A has consistently outperformed the wider M&A market. Having been hit in their main operating markets, businesses are now increasingly seeing the need to diversify their operations across a number of regions.At the same time, we are also seeing increased demand from the world's rapidly evolving economies such as India...
Throughout the recent economic downturn, cross-border M&A has consistently outperformed the wider M&A market. Having been hit in their main operating markets, businesses are now increasingly seeing the need to diversify their operations across a number of regions.
At the same time, we are also seeing increased demand from the world's rapidly evolving economies such as India and China. It is in this environment that businesses are increasingly looking to their legal advisors not only to assist them in overcoming the legal hurdles posed by the M&A process, but also to help them bridge the cultural gap between buyer, seller and target businesses.
Legal Hurdles
When dealing with large multiplejurisdiction transactions, subtleties in different legislative frameworks can have a huge impact on both the nature and timing of a transaction. A deal on which Eversheds is currently advising highlights this. The deal involves an acquisition of various businesses across the UK, the US, Germany, India, Korea and Singapore.
Completion of the transaction will have to be carefully considered to accommodate the fact that in Germany assets do not just need to be "sold" but also "transferred" (each having a separate legal meaning), whilst in India - a restricted currency market - there are various hurdles to overcome in relation to the flow of monies in and out of the country. Companies also need to consider relevant anti-trust/anti-competition legislation, which can have a huge impact on both the plausibility and the timing of a transaction.
Most businesses are aware of the European anti-competition regime, whilst much fewer are aware of its Indian and Chinese counterparts. The Indian and Chinese anti-monopoly laws have come into force relatively recently. Indian anti-monopoly laws are based on EU anti-monopoly legislation but the Chinese regulations are much more challenging, as decisions can often be influenced by nationalistic concerns and the protection of domestic industries with the views of trade competitors and other stakeholders taken into account. Anti-trust/anti-competition issues need to be addressed as early as possible in the deal in order to ensure a smooth transaction.
Cultural Differences
Whilst the legal requirements can be problematic, they are more often easier to identify than the cultural differences. All mergers require integration of corporate culture but the exercise becomes even more difficult when it extends to national cultural differences. Fundamental problems can arise through lack of understanding of the rules of business in different countries.
There are some jurisdictions where local customs and business cultures mean that it can be difficult in practice for a business to fully understand how they can comply with the law whilst not causing any offence or detriment to its bargaining position. In India there is a general perception and acceptance of gifts as a way of life, including the purchase of gifts given by companies to their staff, suppliers, customers and targets during special occasions such as at festivals, weddings and retirement etc.
This could have profound implications for companies doing business in India, especially with the extra-territorial effect of the US Foreign Corrupt Practices Act and the (recently in force) UK Bribery Act. It is scenarios such as this that has led Eversheds to develop an anti-bribery@work online e-learning training package, used by over 45,000 users in 24 languages across every continent, to help clients avoid anti-bribery/ anti-corruption liabilities in their global business dealings.
Approach to Project Management
Careful planning and a robust, clienttailored, project management approach is critical when running multiple-jurisdiction transactions. Whilst clients of certain nationalities will expect lawyers to lead the transaction on their behalf (only asking for client input where absolutely necessary), others will see the lawyers' role as merely that of an advisor, providing assistance at the appropriate stages, whilst leaving the co-ordination of the transaction to the company's in-house team. Recently Eversheds advised SPX Corporation, a global manufacturing and industrial equipment supplier, on its £700m acquisition of Clyde Union Pumps.
Clyde Union Pumps operates eight manufacturing facilities and 25 service centres worldwide including India, China and Brazil. A multi-disciplined team of experienced lawyers across the UK Company Commercial, Real Estate and HR practice areas worked closely with colleagues in our China, Singapore, France and Dubai offices and with one of our best friend law firms in India to provide a seamless international service. Such careful planning is also needed when considering the completion arrangements for large multiple-jurisdiction deals.
Last year, Eversheds advised Tyco, a US based parent company, on a sale (via their Danish and English subsidiaries) of six of their businesses across Denmark, Sweden, Finland, Poland, Hungary and Greece to a buyer in Luxembourg. The transaction completed remotely involving significant coordination to ensure that all of the transaction documents were executed correctly and contemporaneously, as well as ensuring that post-completion formalities were completed (with many jurisdictions still relying heavily on notarisation and apostille requirements). We are increasingly seeing clients instructing lawyers to project manage large multiple-jurisdiction transactions despite the transaction not involving any element native to that particular office.
Last year, Eversheds also advised Assa Abloy Entrance Systems (a Dutch company) on their acquisition of Flexi-Force Group, a manufacturer of overhead garage doors based in eight countries, across three continents - a deal which also had no English law element but in relation to which the client had identified a global project management approach as instrumental to the successful conclusion of the transaction (as an international law firm with legal specialists operating in a variety of sectors, we are using our experience of thinking differently and challenging industry norms to help deliver innovative cross-border corporate development advice and account management solutions on a seamless basis).
As businesses seek to expand and diversify their operations across multiple- jurisdictions, a keen understanding of the legal hurdles and the cultural differences in different jurisdictions will help them to better understand the challenges they may face and help to manage expectations. Once they have decided to take the plunge, careful planning and robust project management should ensure a successful transaction and a fruitful and longstanding business partnership.