As mentioned in Chapter 1, we primarily speak to the U.S. middle market in this handbook. However, we know that many of the concepts and dynamics discussed are playing out in middle markets across the globe. So, as we conclude the body of this book, we thought it important to provide some guidance for cross‐border transactions. Those experienced in making acquisitions of non‐U.S. companies or selling to a non‐U.S. buyer already know that a cross‐border dimension adds many layers of complexity for the U.S. domestic party and its supporting team, whether as a buyer or a seller.

The goal of this chapter is to provide a high‐level survey of cross‐border considerations and to highlight areas to investigate in shaping your deal strategy and pursuing a transaction. We encourage you to use this chapter as a primer and a checklist of topics about which to dig deeper.

Where practical, we delineate concepts and notes for both a domestic selling transaction (referred to as an inbound M&A) and a domestic buying transaction (referred to as an outbound M&A). In other words, inbound is when a domestic company is being acquired by a foreign company, and outbound is when a domestic company is buying or acquiring a foreign company. While much of this chapter focuses on the United States as the domestic country, the concepts of inbound and outbound transactions generally hold true no matter where you are located.

This chapter starts with an overview of the challenges of, and alternatives to, cross‐border acquisitions, highlighting the implications of cultural differences (which are hard to overstate). After a more detailed discussion of culture, we transition to specific deal topics such as country risks, financial risks and reporting, market and operational risks, the legal environment, due diligence, and then cross‐border integration.

IS CROSS‐BORDER M&A THE RIGHT MOVE?

It is always important to consider M&A in the context of other strategic options for expansion. Direct investment through an acquisition is not the only way to enter or expand in global markets. A full and proper understanding of the opportunity may suggest that hiring sales agents, developing alliance or joint venture partners, licensing a local manufacturer or channel, or choosing another geographic footprint or acquisition target altogether might be a wiser choice. At the very least, understanding all your options will help you with the negotiation process, relationship building, and ultimate integration approach.

Strategic due diligence is this act of validating the rationale for a deal. Rooted in strategic plans, it consists of carefully delineating the objectives, comparing options to confirm that M&A is the right approach and the target is the best choice, and assess whether the transaction can be successfully concluded and integrated. This “pre‐diligence” is increasingly being demanded by boards of directors, and it begins well before the traditional transactional due diligence process of evaluating confidentially exchanged information. Even when it is begun after a deal has been conceived, it is a necessary step to make sure the acquisition aligns with corporate strategy, that M&A is the right approach, risks are manageable, and the core assumptions and rationale for acquiring the target are valid and compelling. When large enterprises expand globally, they begin with the advantages of having big strategy teams skilled at sizing market opportunities in foreign markets, relationships with banks and other advisors who themselves are global, and, in many cases, preexisting relationships with business and political actors in the companies they are interested in. Middle market companies rarely have these, but they are not alone. Middle market companies in particular can benefit from trade missions, the U.S. Commerce Department, and the business development offices of their states and cities. Often the latter will bring in foreign companies looking to invest for visits and introductions. These can be valuable not just to companies seeing inbound investment but also to middle market companies who want to be introduced to potential partners or acquisitions abroad. Often business development offices will lead missions to foreign markets with the explicit purpose of helping local companies find markets (and partners or targets) abroad. These and federal offices can and do provide technical and other assistance, advice on regulations, taxes, and other issues, and access to consular and other officials. And by participating in the work of business development offices, middle market executives will meet peers who are also exploring international markets, whose experience and advice can be invaluable.

Pursuing entry, expansion, and growth in the global market by a U.S. company through M&A requires an increased focus on risk assessment and an especially thorough validation process, particularly with regard to cultural factors that prove to be significant obstacles for many businesses. A critical success factor is developing an awareness of the cultural factors and other international risks across the entire deal process even before assessing strategic options for global growth, so the right choice can be made.

Culture is not the only risk. Other country risks include issues such as internal political stability and geopolitical threats, political priorities and ambitions, currency issues, financial strength and economic growth, the maturity of the legal environment and enforcement of regulations and laws, physical and cyber security, market structure and behaviors, and similar considerations that are often taken for granted in a domestic acquisition. These considerations are important when evaluating options for entry or growth in foreign markets.

The “Growth Toolbox” in Table 20.1 suggests a matrix (or lens) that could be a starting point for evaluating options and choosing the best approach in the context of such risk considerations.

While this table starts with culture, other factors are often evaluated first, simply because they are easier and less subjective to assess. If other “country” risk factors support further consideration of M&A as a viable approach to growth, culture becomes a primary factor. Because it is both a complex topic and essential to consider at every step of a foreign acquisition process, from strategic rationale to integration, we will begin with a discussion of culture.

CULTURE

All mergers and acquisitions require some level of bridging differences between corporate cultures, but this task becomes more daunting when you add in the effects of cross‐border cultural differences. Even in the U.S. market, different regions have their own cultural uniqueness, and these differences are dramatically greater in other countries. Cultural differences also exist across various industry sectors as well as between specific companies. A process industry likely has a different work culture and operational decision‐making process than a hospitality business or banking enterprise, even though they might have the common denominator of being traded on Wall Street. A software developer probably has employee behaviors that differ considerably from those of factory employees who are fabricating parts to drawings provided by engineering. But cross‐border deals add significantly more cultural complexity.

Wikipedia defines culture as “an umbrella term which encompasses the social behavior and norms found in human societies, as well as the knowledge, beliefs, arts, laws, customs, capabilities, and habits of the individuals in these groups.” Raymond Williams, one of the founding fathers of Cultural Studies, once said “Culture is one of the two or three most complicated words in the English language.” A valuable approach for cross‐border deals is to think as broadly as possible about the many potential meanings of culture. Take a few minutes to think about how you understand culture, then compare your thoughts with what the word might mean to others, as shown in Table 20.2. Then consider how important each is to choosing your entry or growth strategy and how you would address these factors going forward.

Cultural differences can be so important that they not only guide planning and choosing the entry or growth approach in a new country, but as they surface throughout the course of a transaction, they can result in the rethinking of plans as diligence and integration planning move forward. Culture can be reflected in variations of the products and services being sold, where and how they are purchased, and how they are used or consumed. Without a thorough understanding of a market and its culture, perhaps from having already been operating as an insider to a target market, such variations may not be found until deep in the diligence process, or worse, during integration.

In many cross‐border M&A deals, the effort involved in cultural integration proves more difficult and takes much longer than expected, resulting in a relatively high rate of disappointing outcomes or even failures. Part of the problem stems from the difference in mindset and the interpretation of business transactions and conduct, and also from local transparency practices. In the United States, people are accustomed to clear guidelines for the law and the ability to enforce judgments and actions. In quite a few countries, such as in the Middle East or in Latin America, there are elite groups to which the laws may not always be applied and that expect to get a free hand in almost everything that is done. In some countries (the European Union especially), workers and employee councils have strong, formal roles in corporate governance that may be unfamiliar to American executives.

Other problems arise from a lack of understanding of the basic rules and norms that govern how business is conducted in various cultures. For example, when working with Japanese colleagues, failing to understand the importance of maintaining the appearance of harmony and agreement (even when neither actually exists) risks creating serious discomfort among coworkers or causing offense at meetings with behavior that would be viewed as perfectly acceptable in a Western context.¹ In most Muslim countries, sharia, or Islamic law, influences deal structure as well as the legal code. And European corporate cultures tend to be more hierarchical (at least in style) than those in North America.

Differences in negotiation styles can cause misinterpretations and misunderstandings, impeding progress. Decision making may not proceed at the same pace, and some requests for information may be seen as too intrusive or directed at information that is not routinely available. Policies on transparency in disclosures and ethical practices throughout the course of the transaction and ongoing business might differ between buyer and seller. Relations between employers and employees may differ on issues ranging from language to basic work habits and supervisory relationships, the prevalence and role of labor unions, and the extent of diversity, equity, and inclusion (DEI) practices. Culture is an essential and worthy element of study when first considering entry or growth options because it will be a factor at every stage of an acquisition process, integration planning, and the resulting combination going forward.

The late Dutch professor Geert Hofstede (1928–2020) did pioneering work in the area of cultural differences across countries, and produced a framework for such assessments that can be helpful when considering cross‐border growth options. Hofstede Insights (www.hofstede-insights.com), a global consultancy with headquarters in Finland, builds on Professor Hofstede's work in its conducting ongoing research and consultancy for organizations providing products and services in the global environment. The website offers a complimentary resource that can be used for an initial, high‐level assessment of cultural differences: https://www.hofstede-insights.com/models/national-culture/.

COUNTRY RISK

Fortunately, many country risk factors can be well known in advance of a transaction: the type of governance and political systems, political stability and threats, independent assessments of relative physical and cyber security concerns, public data on the strength and stability of the economy, published restrictions and the extent of intervention in foreign direct investment, the existence of free trade agreements, and so forth.

Some other factors are less visible or are more complex and require local expert assistance. Examples include the protections offered by various deal structures and provisions, and the reach and extent of enforcement practices. For instance, in some countries an asset deal structure does not provide protection from the historical liabilities of a business.

A potential buyer must consider the stability and safety of an investment and determine whether a more patient and less capital‐intensive approach than acquisition makes sense until an emerging market further matures, politics are more favorable, the economy becomes more stable, or perhaps until a brand has been better established through local channel partners.

FINANCIAL RISK

Financial risk assessment begins with the specific target country and its economy. Currency fluctuation is among the most obvious issues, impacting the entire process, from recasting of historical financials to projections and pro forma financial statements. Currency stability and fluctuations are also reflected in local valuations, as well as purchase price currency risk over the months required to close a transaction, matters such as cross‐border transfer pricing, and more. Local interest and inflation rates are also essential considerations, along with tax policies on foreign entities and whether and how profits can be repatriated.

The gold standard for financial reporting in the United States is Generally Accepted Accounting Principles (GAAP) applied as in a full audit. In outbound M&A, there are varying financial reporting standards and conventions worldwide, such as International Financial Reporting Standards (IFRS) used in Europe and other countries around the world. A foundational understanding of a target's basis for financial reporting and taxation is essential in valuing the enterprise and then being able to negotiate the transaction. Translating the target's numbers into GAAP and reporting them on a consolidated basis is usually important to the investors and lenders of the acquiring U.S. entity. This is an area of competence that is often provided by external transaction advisors.

Although there is an aversion to paying taxes in all countries, in certain emerging countries this aversion has become evasion and can rise to the level of a local custom. For example, in some countries, two sets of books might be maintained—one for government filings and taxes, and another for ownership and operational management. Business valuations must carefully evaluate prior tax compliance by the target company as well as the impact of full tax compliance on future operations. As with an acquisition in any country, the acquirer should seek to structure the deal to avoid historical tax liabilities and minimize (but not evade) future tax obligations, paying attention to the tax on dividends and other transactions within the corporate family (e.g., royalties, commissions, and so on) as well as potential taxes associated with future exit strategies. For example, sometimes it is tax efficient to form a holding company in a country with a favorable tax treaty with the home country of the target so that a later sale of the target will receive the benefits of that treaty. Again, this is an issue that usually benefits from the use of external advisors.

Another important financial topic is understanding the rules and implications of transfer pricing between entities in different countries, and developing a strategy that optimizes cash flow. Finance and accounting changes involving a target in another country may be required by the buyer's home country policies as well. For example, publicly traded U.S. firms face the need to bring an acquired entity into compliance with the Sarbanes–Oxley Act. This list is not exhaustive, but currency and exchange rates, financial reporting standards, taxation, and transfer pricing are among the key issues.

MARKET AND OPERATIONAL RISKS

It is also important to understand whether the risks associated with a specific industry or market are similar to those of the buyer's home business. The local industry structure and dynamics might differ—for example, more or less use of intermediaries or less integrated supply chains—perhaps resulting in a somewhat different local value chain as well as different strategies by competitors or different competitors altogether. Drivers and trends may be different as well, from the influence of factors such as government policies, technology adaptation, or consumerism. In one country, competitors may have a strong influence over standards for products or services, while in another country, customers might have the power to dictate offerings and specifications.

Risks become reality by failing to understand and plan for these differences. Encountering unfamiliar competitors presents a challenge to determining strategies such as differentiation or cost leadership or pursuit of an attractive niche. A misunderstanding of local market drivers will obviously result in skewed projections, inaccurate pro forma financials, unreasonable management objectives, and perhaps overpayment for an acquisition. Are existing orders being taken for granted, or will customers still want to do business with the new owner? Will they even recognize the new entity, or will competitors rush in to take advantage of the transition?

Operational issues such as the failure to understand supply chain logistics or business support systems—and the corresponding planning to mitigate those issues—can result in missed shipments or poor quality. Labor might be highly available and highly skilled, or enhanced training systems and pipeline development might be required to meet the parent company's quality and productivity standards as well as enable revenue growth. For example, consider whether the target country or geographic region has a supportive educational infrastructure or if it would be necessary for the buyer to implement fundamental educational systems as well as job‐specific training.

THE LEGAL ENVIRONMENT

Understanding the legal system and nuances of the target company's country is an important step in determining the process and approach for a U.S. buyer making a foreign acquisition. While this is the case in any market, it is particularly true for an acquisition transaction in an emerging market. Before starting the process of drafting a purchase agreement, the buyer needs to understand not only prevailing local law, but also the customary process for preparing, submitting, and negotiating such agreements. Some may be surprised to discover that execution of the final acquisition documentation simply marks the beginning of the next round of negotiations. In fact, in some countries it is customary to incorporate vague language and imprecise terms in the documentation with the implicit understanding that there will be later negotiations.

In one country, a complete, detailed agreement might be written according to the laws and customs of the buyer's country, then subjected to a reading, translation, and review by a notary and transferred into a legal framework for the seller's country. In another country, the proposed transaction must be entered into the queue for a special court or tribunal system for review and approval. And in the European Union, transactions meeting certain size thresholds might be submitted to the EC for antitrust review and also reviewed in the target's country for local matters such as compliance, securities laws, and FDI restrictions (foreign direct investment and ownership of natural resources, media, defense‐related capabilities, and so forth).

An acquiring company should have a good understanding of the enforceability of contracts, particularly in an emerging‐market environment. In some countries, justice delayed is not only justice denied, but it is also commonplace. Even where the court dockets are not overloaded, the quality of justice may be strained. While local arbitration is an option, foreign companies often believe that local arbitrators tend to favor local interests. If the acquirer has sufficient bargaining power to dictate governing law and a dispute resolution mechanism (e.g., arbitration in another country), the acquiring company may find enforceability of a decision problematic. Enforcement may require utilization of the same local courts that the dispute resolution process was designed to avoid. Courts in an emerging country may find that, without regard to the merits of a decision that has been rendered, a particular dispute resolution mechanism itself violates public policy.

In some countries, legal due diligence may well encounter difficulties resulting from availability of information. For example, relevant public records may be incomplete, nonexistent, or difficult to find due to bureaucracy or limited, manual retrieval systems. In certain countries it is common practice to avoid formal real property transfer mechanisms because they are time‐consuming, expensive, and tainted by corrupt practices. This complicates the determination of something as basic as land ownership as well as the ability to determine whether there are third‐party liens attached to a property of interest. Of course, it is not unusual to encounter private records that are incomplete at best and accounting that is unreliable.²

• Before going to market, a U.S. selling company that anticipates the possibility of a non‐U.S. buyer should evaluate potential restrictions that may either prohibit a transaction or limit the value of the seller's import and/or export licenses, and possibly impair the value of the company to a buyer. An inbound deal can create significant value for a foreign buyer, but only if the buyer can realize the expected performance. Import and export licensing can be especially tricky for those entities that supply military or security‐sensitive information or technologies. For example, foreign entities investing in certain U.S. businesses or real estate must request review and approval from the Committee on Foreign Investment in the United States (CFIUS), an interagency committee operating under the U.S. Treasury Department and charged with determining the effect of such transactions on national security. Most other countries have similar laws pertaining to natural resources, media, defense, and other industries.

Corruption, while not unique to developing countries, is more common in emerging markets. And any level of corruption will complicate compliance with U.S. FCPA rules and regulations. The FCPA prohibits payments, gifts, or offers of “anything of value” to foreign officials with the intent of influencing or attaining any improper advantage; however, it can be difficult in certain developing countries to know whether an individual is a private businessperson or a foreign official. Regardless of local enforcement, it is a violation of the FCPA to induce foreign officials to commit any act in violation of their duty to uphold local law. The FCPA does exempt certain payments to foreign officials who “expedite or secure” the performance of routine governmental action. However, many more facilitation payments are a matter of due course in some developing countries.

When examining target companies, investigate compliance with the FCPA by asking several questions:

• Has the target company (or its principals, directors, or key managers) been publicly sanctioned or come under suspicion for corruption?
• Have background checks and other forms of due diligence been performed on key members of management, customers, agents, and so on to identify potential government links?
• To what extent does the target company rely on third parties (like brokers, intermediaries, or agents) to conduct business?
• How reasonable are the amounts of retainers, commissions, and expenses paid to third parties in connection to sales? Are they so generous as to allow for payments to influence other parties?
• Has the target company distributed a compliance policy to all employees and agents? Has it been regularly enforced, and have records been maintained?
• To what extent does the target company maintain written agreements for all international agents regarding FCPA and anticorruption clauses?

All of this means that from the very first stages of negotiation, and certainly before a letter of intent has been entered into, parties to a cross‐border transaction must think carefully about their legal assumptions and question whether they apply. Local legal counsel is usually essential—but businesspeople also have a role in raising issues in a timely manner to ensure that their vision is satisfied and risks are mitigated.

LABOR AND EMPLOYMENT

In and of themselves, labor factors in a given country are a critical factor in the success of any acquisition. An acquiring party should be well aware of the cultural aspects of local labor relations and the experience of other foreign entrants in the local labor markets. In some cases, employees might have more influence on an acquisition than what a U.S. company experiences in its domestic market. In Germany, for example, larger companies must provide for employees to elect half of the supervisory board members who then appoint and oversee members of the management board that in turn must approve major business decisions. Many countries have laws protecting their local labor force, but this is a particular concern in developing countries. In addition to the possible right to participate in acquisition negotiations, the local labor force may have extensive rights limiting the acquirer's ability not only to terminate employees but also to change employment rights and privileges, including those related to seniority. The more a country falls into the category of emerging market, the more likely it is that labor laws will vary from one jurisdiction to another. Some countries limit the number of foreign nationals who can be brought in to assume key responsibilities.

The cost of labor must be examined alongside the quality of labor and in the context of labor‐cost trends and how important labor costs are in the first place. It is important for these and other human capital factors to be considered under several scenarios for a number of years if a buyer is to get a more realistic picture of a target company's value and of future integration issues.

Other important considerations include various benefits and social costs, the handling of issues such as time off and sick leave, and pension plans—not only from the standpoint of ongoing costs, but also funded and unfunded accrued liabilities. Obviously, these labor issues related to governance and finance are in addition to employment issues more directly associated with workplace culture, as already mentioned. The acquirer must understand and address attitudes toward work and accountability, supervisor–employee relationships and perceptions of authority, views on ethics and integrity, the extent of trust, entrepreneurship, safety compliance, and many other factors, and the conclusions must be factored into integration plans, as discussed at the end of this chapter. Since a high percentage of corporate revenues are spent on people (salaries, benefits, hiring costs, etc.), due diligence must focus on all issues related to human capital in every phase of the M&A process—and the earlier the better.

NEGOTIATIONS

Closing a cross‐border deal requires tremendous finesse in terms of international negotiation skills. The fact is that cross‐cultural negotiations can make or break even the most carefully planned global deals, whether buying or selling. Over decades of more global thinking, companies in both Asian and European countries have developed substantial experience and expertise in negotiating in an international marketplace, and they may be more adept in this proficiency than some of their counterparts in the United States.

The skills required to negotiate successfully in the United States do not necessarily translate to success abroad. In fact, past strengths can be future weaknesses on the international stage. The key is to identify which skills cross over, which skills require retooling, and which skills are simply missing from the toolbox. Most importantly, businesspeople should never assume that knowledge and understanding of the business operations and finance of the target company, no matter how in‐depth, will compensate for lack of cultural understanding in the negotiating process. It will not. Cultural awareness is no longer a nice skill to have; it is essential for success overseas and, sometimes, next door.

For example, negotiation, as it is understood in the United States, is the process by which interested parties resolve disputes, agree on courses of action, bargain for an individual or collective advantage, and attempt to create a win‐win outcome. Internationally, however, negotiating has much more to do with understanding people and their customs and developing relationships. This is especially true with emerging market countries, where the relationship‐building process and political red tape will slow deal progress. Unfortunately, many U.S. executives are unfamiliar with this dance and mistakenly launch directly into the transactional phase of negotiations. Such short‐circuiting of the negotiating process will lead to frustration, disappointment, squandered resources, and lost opportunities.

DUE DILIGENCE

Too often, U.S. businesses are hastily lured into specific global markets by competitor activities before extensive due diligence is complete. They might be chasing competitors, or (and this is especially common for middle market companies) they might be pressured into global expansion by the international companies they supply. They might assume that what made them successful in the United States, or in some instances, in another country, will work universally. Or they might not examine all the options (strategic due diligence discussed earlier).

It should be clear from our discussion of cultural, financial, legal, and other considerations that cross‐border diligence is complicated and worthy of special attention to detail, particularly when compared to due diligence for domestic deals. The lack of transparency combined with the differences in political, regulatory, and economic policies in emerging markets adds to the nature of unpredictability, and therefore requires more due diligence, data points, and sensitivity to cultural nuances. Even the best financial and legal diligence practices do not uncover the whole story for any given prospect, and certainly do not guarantee success. Neglecting cultural due diligence can have consequences no less disastrous than neglecting other areas. Smart acquirers investigate targets by deploying their diligence team of people who possess a deep knowledge of the local language, customs, legal requirements, and business practices—and almost always, this means augmenting their teams with expert external advisors.

Due diligence needs to cover all the topics discussed in Chapter 16, but in cross‐border deals it is particularly important to examine a few points with even greater care, in order to confirm that the full expected value of a target would be captured in a transaction. Validate the ability of the seller to convey clear titles to assets, whether real estate, equipment, or intellectual property. In addition, order backlog and contracts with suppliers and customers need to be examined and questioned to determine if they are desirable, transferrable arrangements or whether unwritten rules, agreements or verbal commitments exist that can be uncovered only by interviewing local advisors or the target's own employees, which again requires both a trusting working relationship and a seasoned diligence team of employees and advisors who have cross‐border experience.

INTEGRATION

As in domestic acquisitions, deal rationale often guides the integration approach—whether stand‐alone or fully integrated or something in‐between—and the period of time in which the integration is implemented. Postclosing integration planning should begin with the acquisition strategy and be shaped by feedback from strategic and traditional due diligence throughout those processes. The basic outline in Chapter 8, “Corporate Development and the Buy‐Side Process,” applies to both domestic and cross‐border deals.

Integration is worthy of special attention because associated shortcomings cause many international acquisitions to disappoint or fail. Price negotiations, while certainly important, are rarely, if ever, the primary reason for failure. Most often it is the cultural evaluation of a target company and its impact (or lack of impact) on integration planning and execution that creates problems. Echoing back to the earlier part of this chapter, culture weaves its way through every aspect of a deal. Michael Porter argued years ago that most cross‐border ventures are bound to fail mainly due to cultural issues. And just to emphasize the cultural effect, Professor Hofstede said that culture is more often a source of conflict than of synergy. If cultural differences are going to be an impediment to successful integration but a deal otherwise makes sense and creates value, it makes sense to have an extensive cultural diligence effort, plan carefully, and then perhaps implement slowly.

A well‐planned post‐M&A integration will enable:

• A smooth transition
• Retention of employees
• Retention of customers
• Realization of synergies
• Expanded global presence
• Fulfillment of strategic objectives

In contrast, early symptoms of failure could be:

• Missed deadlines and late shipments
• Quality issues measured on the factory floor
• Declining customer satisfaction metrics
• Lost suppliers, employees, or customers

Unchecked, these symptoms can lead to serious financial or legal issues, lost focus on the core business, a damaged image in the marketplace, unsuccessful transactions, and a reluctance to undertake future M&A deals.

Companies can prevent late‐stage integration issues from derailing an otherwise sound international expansion initiative by following these additional guidelines—again starting with cultural sensitivity that is reflected in determination of the entry or growth strategy but culminating in integration leadership, planning and execution.

• Make a strong commitment. Peter Drucker once said, “Unless commitment is made, there are only promises and hopes … but no plans.” Management has to be on board 100%—on both sides! Developing an international market requires enormous energy, knowledge, managerial buy‐in, and an understanding of business practices in other countries. Few, if any, companies have the resources to go it alone. They will need a non‐U.S. view of the world and the assistance of people experienced in global business transactions.
• Choose the right integration leadership. Integration can succeed or struggle based on just a few very controllable factors. Is the integration manager a seasoned, respected, and accountable leader who is culturally sensitive and knowledgeable for the specific project, able to relate and effectively communicate at all levels throughout the process? Is the integration manager involved from the outset in the diligence process to build knowledge, identify key employees and roles, anticipate issues, and drive detailed planning? Will the integration manager complete the plan and choreograph next steps prior to closing, to make sure employees, customers, and value are not lost in the transition?
• Be humble. A brash, pushy, or imposing approach by an arrogant businessperson—perhaps coming from a position of greater market share or resources or presumed stature—is rarely effective in the global arena. Successful international business leaders possess a quiet, respectful humility combined with a passion for learning, understanding, and practicing how people in other cultures live, work, and like to be rewarded. Customers in different countries have unique ways of relating to products and services. Their lifestyles vary greatly, along with their values, priorities, and buying habits. For example, it is seldom practical for an acquirer to impose its language on an acquired company—not just as a matter of avoiding resentment, but also as an issue of maintaining continuity of business. Savvy international businesspeople blend in and adapt to the cultural norms of whatever market they are serving. In this respect, cross‐cultural or intercultural diversity as a corporate principle is an absolute requirement for business survival and long‐term profitability.
• Facilitate cross‐cultural communication and team‐building. Research shows that communication between culturally different organizations is often plagued by prejudice and stereotyping by managers on both sides of the deal. Poor or insensitive communication between managers and the target company's employees can derail an international venture's chance for success. With proper cross‐cultural training, these problems can be minimized or prevented altogether. And beyond cultural differences, the physical separation between global operations coupled with an increasingly remote work environment and travel restrictions in the aftermath of Covid‐19 result in challenges to building relationships, respect, confidence, and alignment in cross‐border teams. Create opportunities for cross‐cultural engagement and collaboration at all levels of the businesses. Define and facilitate relatively easy early wins to celebrate and build positive attitudes.
• Do not think integration necessarily has to happen all at once. Having a 100‐day plan does not mean you have to start cutting costs or taking other bold actions right away. Think through the implications of every aspect of integration and implement a timeline that retains resources, maintains continuity of operations, gives the buyer a chance to learn more about the company's processes, employees, and customers, and provides a foundation for future success and perhaps more dramatic changes later. Sometimes this starts with retaining local leadership or even keeping the business as a stand‐alone entity for a period, perhaps focusing on top‐line growth actions rather than cost synergies.
• Ask for help. Seek guidance from an experienced, hands‐on international business expert—someone who thoroughly understands how to do business internationally and in that specific region. Such a professional is sensitive to the national and corporate cultures of both the client and target countries and will be able to guide you and put some of the essential policies in place. For example, what does it mean when foreign business executives become quiet at a key meeting? Are they in agreement or disagreement? Are they insulted? Are they trying to hide their laughter from you? How does the country's ethical system differ from that of the United States? Is corruption rampant? Will the U.S. entity be competing with businesses owned by relatives of the country's president? (If so, good luck!) While there are no guarantees in any business venture, the right international business expert can make a dramatic difference in and increase the chances for ultimate success.

SUMMARY

Selling a middle market company to a non‐U.S. buyer can create a unique acquisition opportunity for market entry or expansion for a foreign investor, and possibly command a premium for the seller. In today's global market, both private equity and strategic acquirers from many countries pursue U.S. targets. Conversely, U.S. middle market growth companies are pursuing strategies to expand beyond the United States and enter foreign markets for many reasons, including access to talent, intellectual property, and new revenues, leveraging their success at home into new markets, and improving global reach for their customers who operate internationally, among other rationales.

Clearly, these cross‐border transactions are more complex and nuanced, and in particular require legal, tax, and market advisors with knowledge and experience in the relevant countries. To summarize this chapter, add local expertise to your acquisition team, and regardless of the country of the buyer or seller, develop the cultural awareness, trust, and patience necessary to execute the transaction and successfully transition the target to its new owners. Negotiation is the beginning, not the end. As Maya Angelou once said, “people will never forget how you made them feel.”