International acquisitions are a transformative conduit for global expansion, forging a direct path for companies to enter new markets and opportunities. When a company purchases or merges with a foreign business entity, it expedites access to established customer bases, local expertise, and operational infrastructure.
After a steep drop-off in 2023, the resurgence in M&A activity in 2024 and beyond is expected to be global. Non-financial companies and private market investors have amassed $8.1 trillion in capital for strategic cross-border acquisitions, driving a surge in pent-up demand.
While many businesses opt for the traditional route of establishing branch offices in new territories, international acquisitions accelerate market entry and provide instant competitive advantages. The first three quarters of 2024 have displayed promising momentum, with global aggregate M&A value increasing by approximately 10% compared to the same period last year.
Here, we explore what’s fueling these tailwinds in international acquisition and how organizations prepare for global growth and expanding into new markets.
Driving forces of international mergers & acquisitions today
Several compelling forces are reshaping the landscape of global M&A that make cross-border acquisitions an increasingly attractive growth strategy.
Market evolution and technology
The convergence of digital transformation and traditional business models has created new imperatives for growth. Companies are actively seeking technological capabilities, particularly in AI and cybersecurity, to maintain competitive advantages in their respective markets. This technological arms race has made international acquisitions particularly appealing for organizations looking to quickly acquire advanced capabilities and talent.
Economic conditions
With corporations holding $5.6 trillion in unallocated capital and private market investors possessing an additional $2.5 trillion, substantial dry powder is ready to fuel cross-border transactions. This financial readiness, combined with stabilizing market conditions and improving CEO confidence, creates a favorable environment for international deals.
Strategic advantages
International acquisitions offer several distinct benefits:
- Immediate access to established customer bases and distribution networks
- Rapid entry into new geographic markets with local expertise
- Enhanced competitive positioning through reduced market competition
- Access to specialized talent and intellectual property
Industry transformation
Key sectors are experiencing significant transformation, driving M&A activity. Energy companies are pursuing strategic acquisitions to broaden their portfolios, while healthcare organizations seek consolidation to drive research efforts. Technology firms are particularly active as they look to expand their capabilities in emerging areas like artificial intelligence.
Global market dynamics
The M&A resurgence is manifesting differently across regions. While North America leads in activity, significant opportunities are emerging in Australia, India, Korea, and Japan, where corporate efficiency drives are particularly strong. This geographic diversity offers businesses multiple pathways for international expansion through strategic acquisitions.
Benefits of an international acquisition for business growth
When executed strategically, international acquisitions offer immediate and long-term advantages that can dramatically accelerate a company’s growth trajectory. While organic expansion often requires years of groundwork and relationship building, acquisitions can provide instant access to established markets, talent, and infrastructure.
Businesses reap the following benefits when pursuing an international M&A as part of their growth strategy:
- Accelerate global growth through new customers and sales
- Reduce costs and overhead
- Diversify revenue streams
- Access new technologies and intellectual property
- Acquire high-quality staff, skills, or industry knowledge
- Gain established local market credibility
- Secure valuable patents and proprietary processes
- Eliminate potential competition in target markets
Actualizing these benefits requires careful preparation and a thorough understanding of the acquisition process. Companies must develop a comprehensive strategy that addresses everything from initial market analysis to post-merger integration, ensuring they’re well-positioned to capitalize on these advantages while minimizing potential risks.
How to prepare for an international acquisition
The path to a successful international acquisition requires meticulous planning, strategic foresight, and careful consideration of multiple factors across business operations, culture, and compliance. While the complexity of cross-border M&A has increased significantly, with global disruption levels rising 200% from 2017 to 2022, proper preparation can help organizations navigate these challenges effectively.
The following guidelines represent key considerations for businesses contemplating international acquisitions, though they are not exhaustive given each organization’s unique circumstances.
Assess business readiness
Before pursuing an international acquisition, organizations must conduct a comprehensive internal assessment to determine their preparedness for such a significant undertaking. Consider these critical evaluation steps before proceeding with any deal:
- Conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis to understand internal capabilities and external market conditions.
- Evaluate external factors that could impact valuation and integration, such as economic climate and geopolitical conditions.
- Verify access to sufficient financing and capital resources for the acquisition.
- Assess organizational experience with change management and cultural integration.
- Review current technological infrastructure and compatibility with international operations.
- Determine the management team’s capacity to handle complex cross-border integration.
Establish clear goals for the acquisition
A well-defined acquisition strategy with clear objectives is crucial for success, particularly in cross-border transactions with heightened complexity. The strategic rationale that benefits acquisitions includes:
- Improving the target company’s performance
- Consolidating to remove excess capacity in the industry
- Accelerating market access for the target’s or the buyer’s products
- Acquiring human capital or technology quickly
- Exploiting industry-specific scalability
- Picking great companies and helping them grow
- Gaining strategic positioning in emerging markets
- Accessing local expertise and establishing business relationships
- Creating synergies through complementary capabilities
Conduct thorough market research
Market research for international acquisitions requires systematically analyzing multiple interconnected factors influencing business growth across borders. Beyond standard financial metrics and growth indicators, teams must evaluate regulatory frameworks, economic stability, and operational complexities specific to the target market they’re pursuing.
In conducting market research, critical areas of focus should include:
- Local market dynamics and competitive landscape analysis
- Regulatory frameworks and compliance requirements by jurisdiction
- Currency fluctuations and economic stability indicators
- Industry-specific growth patterns and market saturation levels
- Regional labor laws and employment practices
- Infrastructure capabilities and supply chain networks
- Political stability and trade relationship assessments
Understand cultural nuances
Cultural alignment is pivotal in determining merger success, yet it often receives less attention than financial and legal considerations. A thorough cultural assessment must examine both organizational compatibility and local business practices, as cultural misalignment is frequently cited as a primary reason for failed international acquisitions.
At the organizational level, companies must evaluate the alignment of corporate values, work styles, and decision-making processes between both entities. This includes examining management philosophies, communication practices, organizational hierarchies, and performance measurement systems. Equally important is understanding the target market’s business customs, such as negotiation protocols, relationship-building expectations, and professional communication norms.
Success in cross-border acquisitions requires navigating both corporate and regional cultural dynamics. For instance, some markets prioritize relationship-building before business discussions, while others follow more direct approaches. Understanding these nuances helps prevent misinterpretations during negotiations and supports smoother post-merger integration.
Companies that prioritize cultural due diligence alongside traditional financial and legal assessments are better positioned to build lasting partnerships and achieve their strategic objectives.
Perform legal and regulatory due diligence
Legal and regulatory due diligence forms a critical foundation of any international acquisition. This process involves comprehensively examining the target company’s legal standing, compliance history, and potential risks across multiple jurisdictions. A thorough legal review helps identify potential deal-breakers early and ensures proper valuation of the transaction.
Key areas requiring scrutiny include:
- Corporate structure and governance documentation
- Existing contracts and obligations with customers, suppliers, and partners
- Intellectual property rights and protections
- Employment agreements and labor compliance
- Environmental regulations and compliance records
- Industry-specific licenses and permits
- Pending or potential litigation
- Anti-corruption and trade compliance history
Engaging local legal experts in the target market is essential, as they bring invaluable knowledge of jurisdiction-specific regulations and business practices. This expertise helps navigate complex regulatory frameworks and ensures all necessary approvals are obtained before deal completion.
Prioritize human capital management
While financial and legal elements often dominate acquisition discussions, human capital management represents a critical success factor in international acquisitions. The complexity of managing workforce transitions across borders requires careful consideration of employment regulations, cultural integration, and talent retention strategies.
Organizations must develop comprehensive strategies that address:
- Local employment laws and compliance requirements
- Compensation and benefits harmonization
- Work authorization and visa requirements
- Performance management systems alignment
- Career development and retention programs
- Leadership communication and change management
- Cultural integration initiatives
- Global mobility policies and procedures
Successful international acquisitions require a cohesive HR infrastructure capable of managing diverse global teams. Companies should establish clear protocols for talent assessment, implement transparent communication channels, and develop integration plans that acknowledge both local customs and corporate culture.
Early planning and investment in human capital management can significantly reduce employee turnover, maintain productivity, and ensure a smoother transition during the acquisition process.
Simplify international acquisitions with Velocity Global
International acquisitions require extensive planning and precise execution across multiple dimensions—from regulatory compliance to human capital management. Velocity Global simplifies these complex transactions by providing solutions that address critical challenges in cross-border M&A.
Through our Employer of Record (EOR) solution, companies can quickly onboard and integrate employees from acquired organizations without establishing foreign entities. This approach eliminates the need for transitional services agreements (TSAs), significantly reducing time to close and operational complexity.
Our global workforce technology platform combines cloud-based workforce management technology with in-country expertise to ensure compliance with local labor laws, manage global payroll, and provide competitive benefits across 185 countries, enabling organizations to execute successful international acquisitions while maintaining business continuity.
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Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
