Even when a deal is signed, the acquisition is far from over. The next step, integration, can be even more challenging. Up to 80% of M&A transactions fail to create any new value. This becomes even more complex when a Chinese company is buying a Western company, purely due to the cultural differences. Given that marriages in rich countries end in divorce about half the time, it’s perhaps not surprising that a union between thousands of people also faces long odds. But integration experts say that with foresight, planning and clear communication, many of those challenges can be overcome.
Congratulations! After all the haggling, 14-hour flights, and 11th-hour dramas, you’ve closed the deal. Your firm now owns a business in another country. The bad news: that was the easy part. Post-acquisition legal and regulatory troubles can present huge challenges. There are many, many requirements, and companies ignore them at their peril. Depending on the market, there may be a lot to advise about. In the US, for instance, the Uniform Commercial Code runs to 2,698 pages, and each of the 50 states has adopted its own variation of those model statutes. In addition, companies should also be concerned about intellectual property law and labor compliance issues.
Like the movies, corporate acquisitions are a collaborative art: miscast one role, and you can ruin the whole picture. The CEO may be the star of the show, but a successful deal demands a strong executive board and chief financial officer—along with investment bankers, lawyers, accountants and public relations advisors—especially when the deal in question is the purchase of a foreign company. As Chinese companies look to expand abroad through acquisitions, it’s worth reviewing the difference each member of the team can make. Here’s our take on how a company should go about choosing the cast of characters prior to an M&A.
Few direct actions of the CEO can have as much impact on the future of a company as the decision to make an acquisition. For Chinese companies that have decided to buy a foreign company, the stakes may be even higher. Unfortunately, it’s not only lonely at the top; often, there’s not much oxygen. One of the biggest risk factors in a merger is that the CEOs involved pursue the deal based on a less-than-rational reading of its merits. Overconfidence, ignorance and greed can lead to the loss of thousands of jobs and billions of dollars in value in a CEO in the grip of a merger mania.
Chinese companies are on an acquisition spree abroad. On paper, buying abroad may make sense, but from strategy to execution, a lot can go wrong. For every company that buys the right asset at the right time for the right price, handles the regulators of its industry in the right way and manages the integration with just the right touch, as many as four others flounder. Many studies have found that 50-80% of mergers fail to create any additional value, and that in fact a bad acquisition can cost the new company dearly. So how do Chinese companies fare and how can they do better?