By Jonny Parkinson, UK managing partner at Marktlink

The energy crisis, inflation in double figures, and a weakened pound: despite the economic and geopolitical headwinds, demand for cross-border mergers and acquisitions remains high. Foreign investors are alert to the opportunity of buying assets for less, and UK owners may be tempted to sell if their assets continue to depreciate. These two factors are likely to fuel M&A activity still further in the coming months.

In August 2022, the UK was ranked the number one investment destination in Europe as companies continue to bring supply chains in-house and seek growth and expansion in new geographical territories. The volume of cross-border deals in IT & Software, Pharma, Healthcare and Life Sciences and Transportation & Logistics is particularly high. But for those looking to buy a business in the UK, or seeking to sell one, there are key considerations to bear in mind.

To ensure the success of a cross-border deal, you need to think about the impact of post-Brexit regulatory changes, assess whether you can achieve a good cultural fit, and find an M&A adviser with the right local and sector knowledge to help you navigate the process.

Understand regulatory changes

Recognising and understanding the intricacies of the regulation involved in a cross-border deal has always been an important part of the M&A preparation process. But Brexit has led to significant legislative changes, and the regulations are still subject to change. For example, the EU recently announced new rules around foreign takeovers, to protect and control its markets.

Working with an experienced M&A adviser will help you understand the landscape of post-Brexit changes and varying cross border regulation, so that legislation doesn’t prevent or delay a successful transaction.

Following the UK’s exit from the European Union you may also need to interact with multiple regulatory bodies. For example, mergers with an EU and a UK element may need approval from both the CMA and the European Commission, and the need for double clearance could lead to delays in completion. The UK’s National Security and Investment Act is another potential regulatory obstacle although it mainly affects international takeovers from countries outside Europe.

Consider cultural fit

Cultural fit is often overlooked but can be a key element in a successful deal. Business owners need a detailed understanding of their own company culture and that of the target company to ensure a good fit. This includes management practices and ways of working, particularly given the new post-pandemic hybrid and working-from-home employment models.

Failing to consider culture can lead to problems with integration, such as difficulties instigating new working practices and protocols, or resentment when employees can’t access the same benefits as their new colleagues.

It’s important to identify the cultural elements that are essential to the success of the deal: for example, financial management, operations, or innovation. Business owners should compare the two cultures, decide which parts to preserve from each, and ensure those elements are not lost during the takeover process.

Finance and legislation will always be top of the agenda when preparing for a cross-border deal, but cultural fit should never be an afterthought, especially given the contrasts in working practices in different countries. Once again, a knowledgeable local advisor is the essential prerequisite for a successful deal. The right M&A specialist will have relevant expertise in legislation, cultural differences, economics, and industries in the country where you’re buying or selling a business and can help you expedite the deal with speed and efficiency. For the best possible outcome, it also pays to choose someone with specialist sectoral knowledge. Finally, when engaging in a cross-border deal, make sure the chosen advisor has previous experience of international deals and is aware of all of the complications they can entail.

Look before you leap

Although current uncertainty makes it harder to predict the trajectory of M&A activity, there is undiminished appetite for cross-border deals. Concerns about the impact of Brexit on M&A activity have given way to a boost in appetite for acquisitions as a route into UK markets. In combination with the weak pound, this makes the UK an appealing destination for investment.

In most cases, shareholders have multiple options for selling a company, so careful attention to due diligence and giving the right weight to cultural fit are crucial requirements for a seamless integration process.

At Marktlink, 70% of our projects currently involve an international party, and we expect this trend to continue. But before entering into a cross-border deal, business owners should ensure they have completed the necessary preparation and considered the transaction from every angle. There is an increasing requirement to understand the regulatory intricacies associated with a cross-border deal and working with an experienced adviser is the best way to achieve exactly that.