CROSS BORDER MERGERS AND ACQUISITIONS IN A POST PANDEMIC WORLD

Aditya Aman, Student, Chanakya National Law University

The world was highly affected by the COVID-19 pandemic. The pandemic changed the global economy completely and forced businesses everywhere to find new ways. One of the most significant changes that this transformation has brought is the return of M&A transactions across borders.

Besides the companies that want to grow, enter new markets, and increase efficiency, the merger of the companies from different countries is now the main strategic plan for the companies to be able to grow and face the challenges and opportunities that will arise in the post-pandemic world.

This was a blog that was focused on driving forces, impediments as well as the latest trends in cross-border M&A, giving potential investors, the policy creators and business leaders some of the most illuminating opinions of the hour.

The Post-Pandemic Resurgence of Cross-Border M&A

The Surge in M&A Activity

In 2020 the pandemic put a stop to global economic activities which in turn led to the sharp decrease in M&As. Although pandemic 2021 was a year of recovery in the economy, it was fuelled by low-interest rates, pent-up-demand, and a lot of money in the financial market. One of the smartest things a company can do is investing in M&A, both in the case of domestic as well as cross-border deals. Based on the findings by Refinitiv, the total of global M&A was estimated at 5.9M, which is a record of all time in 2021 while cross-border transactions made a substantial part of it.

Among the industries that spearheaded this one were technology, healthcare, and renewable energy as the companies made the cross-border transactions while looking for new markets, up-to-the-minute technologies, and portfolio diversification. Companies after the pandemic are seen to be more flexible and are considering cross-border synergies as of future provision against disasters on the backstage.2. Key Drivers of Cross-Border M&A

There are a multitude of reasons for the recent change in the process of cross-border M&A. They are as follows:

  • The Digital Transformation: The pandemic led to digitalization becoming faster, so technology-dependent M&A deals are the most attractive deals in the market. Among other things, businesses are increasingly aiming at the companies equipped with more capable and better infrastructure.
  • Market Diversification: In light of the fact that the recovery process in different parts of the world happens at different rates, companies are using cross-border means to mitigate their risks by entering new markets in other places on the map.
  • Supply Chain Restructuring: A rolling wave of trouble during the COVID-19 time in both the demand and supply chains showed how deep the weak points in the global supply chains had been. This led to multiple companies reorganizing their supply chains through acquisitions overseas to secure a constant source of critical components.
  • Government Stimulus and Low Interest Rates: Aggressive fiscal and monetary measures adopted not only in Europe but also in other countries have injected a new flow of money into the system which ranks among the key elements for record-setting acquisitions.

Challenges in Cross-Border M&A

Despite these giant opportunities, cross-border M&A in the post-pandemic world faced its problems.

1. Regulatory Scrutiny

Technology, healthcare, and infrastructure are strategic sectors that are vital to national defense due to their high technology aspect. Nevertheless, governments not only in America but globally too have been implementing tighter control mechanisms of foreign investments. The Foreign Direct

Investment Industrial Strategy Project can be cited as an example of the UK’s strict policies. A couple of years ago, the French government warned against attempted acquisitions of companies such as Altice and Technicolor by Chinese firms, as they claimed that such moves might endanger national sovereignty. Furthermore, the Chinese government had earlier indicated its austerity towards foreigners’ ownership of fashion companies, with the country demanding that foreigners should not acquire more than fifty percent of their shares. Besides, foreign firms seeking to break into the market could also face problems even if they partner with local firms when Chinese authorities decide to foster local firms.

2. Geopolitical Relations Tension

In the post- pandemic, with geopolitics becoming super sensitive, mainly between the U.S. and China, the U.S. and China have become the two countries that are further enriched by the friction between them. There lies an ambiguity in U.S.-China geopolitical relations which in turn is a complicating factor for cross-border mergers and the emergence of additional compliance challenges and political risks.

3. Cultural and Operational Integration

Cultural and operational integration persists as one of the most difficult issues to those participating in cross-border M&As. The main problem with bringing together different businesses from various countries is the cultural diversity and the operational differences. These also give rise to communication issues. Yet the relatively new pandemic situation with its remote working angle has further confused the whole matter, affecting the companies trying to merge or integrate after a successful merger more than ever.

4. Valuation Difficulties

The effects of the pandemic have greatly increased the market valuations of the businesses resulting in significant volatility. It

5. ESG Concerns

Thanks to the self-realization that has come with age, we are trying to determine environmental, social, and governance. It is interesting that investment has become the joy of both investors and regulators. This means that companies, which are involved in cross-border M&A, must be in compliance with the ESG standards that, in most cases, require additional due diligence as well as compliance costs

Case Studies: Successful Post-Pandemic Cross-Border M&A Deals

Microsoft Acquired Nuance Communications :

 Among given the biggest tech deals the most notable in 2021, it U.S.-based Nuance Communications was subsequent to the acquisition by Microsoft for $19.7 billion. The cross-border acquisition exemplified Microsoft’s strategical focus on AI-driven solutions in the healthcare sector, one of the most prioritized industries since the pandemic period.

AstraZeneca Acquires Alexion Pharmaceuticals :

U.K.-based AstraZeneca obtained the U.S.-based which was a competitor, Alexion Pharmaceuticals, in a $39 billion deal to jump start deeper into the field of rare diseases medications. It shows how healthcare organizations are pursing in using mergers and acquisitions across the border for improving their competitive edge in a changing post-pandemic world.

Sony Acquires Crunchyroll :

 Sony, the Japanese entertainment powerhouse, secured the streaming of anime shows in the U, S -based Crunchyroll for $1.18 billion. This deed acts as a specimen to the tactics of entertainment businesses that use outward business mergers and acquisitions to enable themselves to surf the increasing wave of digital content demand.

Future Directions of Cross Border M&A

Albiet the global economy is undergoing a gradual recovery, cross-border M&As will still have their peculiarities in the post-covid era:

1. Focus on Technology and Innovation

Technology will continuously dominate the cross-border M&A sector, so AI, cloud computing, and fintech solutions will be the key in this regard. Companies are likely to conduct buy-outs of startups and innovative companies to make sure they are in the race of the new digital era and remain ahead of the others.

2. Sustainability-Focused Deals

Future M&A deals will carry sustainability in their definitions. The companies’ actions will be on

acquiring those facilities, which were aligned with their ESG objectives, particularly the renewable energy, electric vehicles, and sustainable infrastructures.

3. Resilience Reigning Supreme

The trigger of the cross-border deals will be obviously the quest for resilience in resilience-type acquisitions, which shall mean investing in companies with time tested supply chains, enabling the sale of various products and providing strong risk management capabilities.

4. Targeting Emerging Market Opportunities

The decision by the companies will result in the growth of cross-border investments in the emerging markets of Asia, Africa, and Latin America as the markets will be alive with activity.

Conclusion

The worldwide economy is on the path of recovery, mainly due to cross-border mergers and acquisitions. They are the most potent instrument for companies to grow, become resilient and innovative in the challenging environment. There are certainly some problems to conquer, for instance, compliance and cultural match, nevertheless, than those ones which that are caused by a successful strategy combined with flexibility will find.  

Although companies have been restructuring their business strategies in response to the pandemic, cross-border M&As could become the new model in global business. Keeping track of new technologies and ideas, the companies will be able to search for untouched ways in turning the world into a smarter and success-oriented place that is connected.

References

  1. Refinitiv. (2021). Global M&A Activity Reaches Record Highs.
  2. Financial Times. (2022). Cross-Border Deals Surge Amid Pandemic Recovery.
  3. Harvard Business Review. (2022). Post-Merger Integration in a Digital World.
  4. Deloitte. (2021). The Future of Cross-Border M&A: Trends and Insights.
  5. McKinsey & Company. (2022). Global M&A Outlook: Post-Pandemic Trends.

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