Cultural differences can make or break cross-border M&A
“Business owners involved in cross-border mergers and acquisitions (M&A) frequently overlook the complex issue of cultural differences which can play a part in making or breaking international deals,” says John Cowie, Corporate Finance Partner at Moore Kingston Smith.
Left unaddressed, they can result in deals stalling – or potentially worse – proceeding but failing to maximise returns for the seller or deliver future value for the buyer.
Cross-border transactions now account for 61% of all deals taking place in the mid-market according to the Compass report produced by Moore Global Corporate Finance (GCF).
Meanwhile, Maryland University psychologist Michele Gelfand has classified national cultures broadly as ‘tight’ or ‘loose’ – and believes these inform behaviour, including negotiating style.
In broad terms, tight cultures are defined as placing a high value on following rules and being uncomfortable with change. By contrast, people in loose cultures are more willing to embrace change and take risks.
A key message from Gelfand is that to strengthen their negotiating hands, both buyers and sellers need to hone their ‘cultural intelligence’ and develop ‘cultural empathy’. She argues that people who excel in adapting to culturally diverse situations perform better on negotiation tasks than peers who lack these skills.
Proceeding without this special empathy can be costly. Bain’s M&A Practitioners 2023 Outlook Survey found that 75% of M&A integrations have cultural issues that lead to delays, personnel changes or other problems.
Attitude to risk
Different cultural norms can result in differing attitudes on risk, influencing deal terms as well as negotiating styles.
In Europe, ‘locked box’ deals are common, in which financial terms are agreed when a contract is signed, enabling the seller to lock in a price at an early stage. Advisers commonly devise sophisticated hedging strategies to protect clients in the event of significant fluctuations in currency values or interest rates in cross-border deals.
US buyers may be more likely to seek a ‘closing adjustment’ when tabling an offer. This means that should an acquisition target’s trading performance deteriorate, or market conditions worsen before a deal formally concludes, a mechanism is in place to adjust the price downward.
Arguably, this may flip the balance of risk in the buyer’s favour as they can exert more control. US buyer preferences are hugely important in a European context as the Compass Report reveals that almost 50% of all cross-border mid-market deals involved acquirers from North America.
Experienced Moore GCF teams are adept at guiding clients on appropriate deal structure, helping avoid potentially costly and protracted legal battles if terms are not clear and agreed at the outset.
There are many aspects of risk in international deals: contractual, legal, financial, geopolitical and regulatory. It can take months of delicate negotiations to agree the finer details of termination rights, earn-out parameters or clauses that safeguard employee rights under new ownership.
Multi-skilled advisory teams can add significant value by representing clients’ interests on these issues and advising on other crucial matters such as tax planning and compliance, both from a company and individual perspective.
Regulatory challenges
Geopolitical risk will inevitably feature in M&A discussions in 2025 as investors consider the potential impact of new political leaders in the US and Europe, ongoing international conflicts and rising trade tensions.
Political agendas can also drive regulatory change and even well-resourced medium size companies often struggle to keep abreast of ever-changing requirements.
Bain reports that in 2024 almost half of dealmakers said regulatory concerns impacted the types of deals they considered. Moore GCF network firms devote significant resource to rigorous due diligence work that flags potential regulatory concerns to clients at an early stage.
Despite efforts at harmonising regulation within trading blocs such as the eurozone, distinct national differences remain in banking regulation, competition law and compulsory disclosures. In-depth knowledge of these differences is vital to prevent a deal being blocked or to avoid incurring penalties for breaches of the rules.
Despite efforts at harmonising regulation within trading blocs such as the eurozone, distinct national differences remain in banking regulation, competition law and compulsory disclosures. In-depth knowledge of these differences is vital to prevent a deal being blocked or to avoid incurring penalties for breaches of the rules.
Cross-border transactions
In addition to navigating differences in regulations and competition law, it is equally important to cultivate trust between stakeholders and corporate finance advisers. As transactions can often take several years to complete and will inevitably encounter challenges throughout the process, a strong foundation of stakeholder trust and adviser commitment is essential for a successful outcome.
GCF member firm Moore Kingston Smith (MKS) closed a landmark deal for RS Aqua, a UK-based specialist in marine technology. The transaction marked a new chapter in a client relationship that began a decade previously when MKS helped the company’s managing director Martin Stemp lead a management buyout of the business.
Stemp then entrusted MKS to help execute the next step of his ambitious growth strategy. After trebling the size of the business, he was seeking a strategic partner to scale up faster and wanted an adviser who really understood the business and what it needed.
MKS corporate finance and tax specialists structured a deal that resulted in the sale of the business to General Oceans, a company backed by growth equity funding from Ferd, a Norwegian family office which is owned by fifth and sixth generations of the Andresen family. Stemp describes it as a perfect fit as the acquirer is a global leader in marine technology committed to developing RS Aqua as part of its own bold expansion plans.
MKS also advised MMGY Global, a US-based marketing firm for travel and tourism, acquiring two European specialist agencies: TCI Research (data intelligence, Brussels/Paris) and Lieb Management (marketing/PR, Munich). MKS advised MMGY Global, a long standing audit client, on these deals, while GCF member firms Moore Belgium and Moore Intaria Germany provided comprehensive support for both acquisitions, including financial and tax due diligence. This was a cross-border collaboration involving three territories that allowed MMGY to navigate complex issues and mitigate international risks.
More recently, MKS advised Asteria Labels & Packaging Group, a European leading labelling and packaging firm with its main office in Belgium and 34 printing plants across Europe, on its acquisition of Label World, an Irish printing company. Moore Ireland provided tax due diligence on the transaction. This marks Asteria’s third recent acquisition, following Compliance Labelling established in Braintree, Essex, and Label Tech, based in Dublin, Ireland.
These acquisitions showcase the Moore GCF network’s capacity to guide clients through international transactions, ensuring they receive the same high level of expertise and successful delivery wherever they are based globally.
More cross-border collaboration
People drive deals as much as price and purpose which is why the right people need to be at the negotiating table from the start.
Moore GCF network firms, Netherlands-based Crossminds, and Moore Belgium demonstrated the benefits of a collaborative approach in a transaction involving a Dutch family-owned company buying petrol stations from a Belgian family business.
Crossminds was lead adviser to Hametha, a petrol stations and fuel storage terminals group. The transformational deal involved Hametha purchasing more than 300 fuel stations from Belgian company MAES, doubling Hametha’s revenue to €2 billion and creating new growth opportunities.
The close interaction between the Dutch and Belgian members of the Moore GCF team ensured issues were identified quickly, allowing negotiations to progress smoothly to a conclusion that suited both parties. Crossminds led meetings between Hametha and MAES and steered talks on price and deal terms, as well as being involved in financing negotiations with Dutch banks and closing the deal. Moore Belgium provided strong support on due diligence and played a pivotal role in arranging appropriate acquisition finance.
The deal’s success was underpinned by insight on each party’s negotiating preferences, expert knowledge of different fiscal and legal requirements and social rights obligations in each country. Local banking contacts were also essential in securing deal finance.
Trusted relationships
Family-owned businesses and family offices seeking investment opportunities feature prominently in mid-market deals in Europe, so understanding the particular dynamics of these entities is essential.
According to Gallup, globally, less than one-third of family firms outlive the founder, and just 12% make it to the third generation. However, Europe’s vibrant family-owned sector has deep roots, with 24% of firms surviving into fourth generation family ownership.
Long-term perspectives and enduring relationships often characterise deals involving family businesses or family offices and Moore has significant expertise in this area.
Looking ahead at the outlook for mid-market deals in 2025, there are grounds for cautious optimism, despite sluggish economic growth expectations.
Private equity funds remain generally flush with cash and are in search of promising investments as well as portfolio exit opportunities. Also, making strategic acquisitions around an inflection point in the economic cycle has historically proven lucrative for savvy investors with international growth ambitions.
“Cultural and emotional intelligence, negotiation styles, leadership tactics, adaptability and transparency, paired with financial expertise and the ability to go the extra mile, are increasingly important for successful completion,” John Cowie, Corporate Finance Partner at Moore Kingston Smith, concludes.
