Foreign mergers account for the majority of worldwide M&A activity. With the global economy on the rebound, cross-border M&A activity is expected to reach record levels. The numbers of cross-border deals currently in the works include:
- Indian personal care products maker Godrej Consumer Products Ltd is in talks with Argentina-based hair color products firm, Issue Group Co, for a possible buyout;
- German rail and logistics operator Deutsche Bahn plans to offer 2.7 billion euros including debt for British train and bus operator Arriva;
- Astellas Pharma, Japan’s No.2 drugmaker has placed a bid on U.S. company OSI Pharmaceuticals;
- U.S. power group AES has lodged a bid for the $481 million Ballylumford power station in Northern Ireland which is being sold by Britain’s BG Group; and
- Norway’s Telenor said it was very close to closing a deal with Russia’s Alfa Group to merge their Russian and Ukrainian mobile operators.
I always find it interesting how foreign business groups are able to negotiate and close these mega-deals with so many cultural issues to overcome. A ground-breaking research paper published last month by the University of Michigan’s Ross School of Business takes a close look at this fascinating dynamic.
The study is a must read for anyone wanting to gain an advantage for their clients in negotiating international deals. The paper, Lost in Translation: The Effect of Cultural Values on Mergers Around the World, examines the role of national cultural values on the incidence, gains, and bargaining process in both domestic and cross-border mergers.
In a comprehensive sample of 116,513 worldwide mergers over 1991 to 2008 the authors conclude that culture has a significant and economically meaningful effect on the volume of mergers. For ease of reference the paper is embedded in its entirety below:
Among the paper’s findings is that, in cross-border deals, the volume and gains from mergers are smaller when countries are more culturally distant. While I think this point might be obvious to some, it’s important to highlight that cultural distance can be minimized with a greater appreciation and understanding of the others’ culture. Doing so will build trust and capture a larger share of combined gains.
Trend to Watch: While Cross-border M&A Activity Will Increase Globally, Look for Emerging Markets to Take the Lead.