Mergers & Acquistions in the international market
Why M&A deals are essential in today’s fast-paced, global marketplace?
Globalization, geopolitical as well as competitive dynamics and new technologies create fast-paced and ever-changing markets – companies have to adapt. Hardly a week goes by without news reports of takeovers by larger companies or their holdings, even – and sometimes especially – in times of crises. Mergers and acquisitions (M&A), consolidations, or sales of individual business generate competitive advantages and further growth opportunities.
“International companies aiming to enter the European market are often using M&A as a tool. And since Germany is the largest European market, this country’s companies are highly sought after targets,” explains Dr. Christoph Thierolf. As the Head of M&A at Commerzbank, he and his team have seen an increase in demand for certain assets which German companies can provide to international clients.
Generally, companies considering an international M&A process can have a diverse set of goals:
- expanding to a new foreign market or regions
- diversifying their product range
- developing additional know-how
- securing skilled workers
- gaining access to new technologies
- generating new revenue sources
- disposing of non-core entities while generating a competitive price for the asset
How to prepare for M&A in a fast-paced, global marketplace?
Looking beyond one’s domestic market creates interesting new possibilities for companies. However, M&A activities can also involve many risks. While a close examination of the target company is essential in order to minimize the danger of a bad investment, a broader set of potential risks needs to be addressed:
How well do investors know the target market?
- Which structural, financial or cultural challenges does the company face?
- What’s the company’s approach to different regulations, employment structures or tax laws?
- How deeply does the buyer understand the target’s industry dynamics and competitive environment?
- How much is known about the acquisition target?
- How can the company’s interests be smoothly implemented?
- Do we have an expert on hand who is well connected (e.g. to investors)?
Having M&A experts by one’s side can tip the scales. After many years of experience and wide success in helping small, medium-sized and large companies achieve their goals, Commerzbank has a strong international network of M&A specialists with a sound knowledge of global markets. Thus we can support German companies seeking a new global approach as well as companies that want to break into the German market. There is a diverse range of possible M&A scenarios, depending on a company’s interests:
A company is looking for access to
- the German market
- German investors
- specific features or a certain expertise
A foreign company may want to
- find a specific skill set, technology or product
- gain a production location in Germany
- A German company looking for access to a foreign market or foreign investors
- A foreign company that owns assets in Germany or neighbouring countries and wants to sell them
While it is important that the solution package is tailored to the specific needs and visions, it is also essential that the expertise provided includes in-depth knowledge of the German market in order to gain accessibility. “Our international network and deep knowledge create a bridge so that buyers, targets and investors have a secure system to navigate cultural, structural and economical differences or expectations,” says Thierolf.
In Commerzbank’s experience as a long-standing and competent M&A partner for German and international companies, it has clearly transpired that mergers and acquisitions create added value. It is important to rethink strategies, redefine goals and potentials, and to subject one’s own business development to critical questions.
Interview with Dr Christoph Thierolf, Head of M&A
What attracts international companies to break into the German market?
It is essential, since Germany is one of the most attractive and economically interesting (European) markets. But we also have to look at it from a geopolitical perspective: Germany is very well positioned logistically. It is an access point if you want to break into the European market. Additionally, it is important that in the eyes of foreigners, Germany stands for certain values and skill sets, for example in the automotive industry or mechanical engineering. So, M&A in these industries can not only create access to a new market, but also to certain technologies, products and skills.
What sets international M&A activities apart from the M&A activities of a medium-sized German company?
The difference lies mainly in the focus of the international transaction: It is much more about the strategic component and viewed from quite a different perspective. German medium-sized companies are a lot more concerned about the shareholder structure when they consider M&A activities. This is simply because, in many cases, the question of succession acts as the driving force.
Do M&A make sense even in times of crisis?
Crises always have two sides. Historically, they have often proven to be opportune times to change the direction of the company or to take action when prices suddenly fall. But depending on how long a crisis lasts, a delay in the process must be expected. For example, during the corona crisis, buyers can’t just get on a plane and visit their potential targets. Trade conflicts can also slow down deals. Depending on which industry you come from, you have to take into account that there could be potential regulatory restrictions. A consultant familiar with the specific regulations of the market is therefore essential.
What are the biggest risks lurking inside an international M&A process? How can they be mitigated proactively?
First and foremost, the company's management has to ask itself: What is the reason for our international M&A project? What are we trying to achieve and how does this deal get us there? It’s just as important to evaluate how well they know the target’s market and how good their connections are. Questions like “How do we actually contact the target, communicate and move forward?” are important and can help prevent unpleasant surprises along the way. Companies also have to acquire knowledge about certain laws, tax restrictions or environmental requirements that might differ from their own. Otherwise they can become entangled in long and expensive re-evaluations or even lawsuits.
What else does Commerzbank take care of during the M&A process?
One of our strong suits is our in-depth cultural knowledge: It is good to have someone who knows their way around and who is well prepared. While the strategy of a larger and established company may already be well structured, fine-tuning makes all the difference. As an outsider, you rarely know in detail what makes the target market tick and whether its structure is completely different from the one you are familiar with. If you ignore such things, you may fall into a trap. Identifying and addressing the target are essential in M&A. Across the pond (or cultural boundaries), this is often difficult.
How do companies resolve the investor question on an international level?
This is an area we are also very involved in, simply because it is often not easy to get in touch with a foreign investor. Therefore, it is crucial to identify, to access and to assess potential investors. First, we compile a so-called longlist of proposals, which is then narrowed down to a shortlist of potential investor groups. Having options and insights is essential.
What is the time frame of a global M&A process?
It can be three months, it can be six, it can take more than a year. It’s really hard to say, because it depends on so many different factors which we don’t always have under control, such as trade wars boiling up or volatile markets. When different countries, politics, laws, and cultures are involved, speed should not be the driving force. You have to have a precise M&A strategy and your cultural knowledge aligned. If you rush off without knowing the potential hurdles of the intended transaction, you may end up in the ditch. The same applies to projects started half-heartedly. Anyone who has made an M&A decision should go through the process with verve. Driving with the handbrake on costs extra time, nerves, money and prestige. And who wants to waste their resources?