2023 Cross-border M&A Update

Cross-border mergers and acquisitions offer key geographical diversification benefits for buyers and businesses alike. Gaining new exposure in new regions can lower business and operational risks under different economic and regulatory conditions. Buyers often look for cross-border deals when their core markets become saturated, when business slows down, or if they can find regulatory or monetary benefits in another country. Cross-border deals are important because they allow companies to expand their offerings by entering new markets or adding new products, services, intellectual property, or technologies. Cross-border M&A can bolster revenue opportunities and cost synergies while scaling efficiency as company operations expand to a broader market.

For decades, cross-border M&A has enjoyed significant movement as companies strategize new routes to growth and new customer bases. For the last couple of years, cross-border M&A deal activity has been mirroring the activity level in global M&A. Transactions slowed in 2020 during the COVID-19 pandemic, bounced back significantly in 2021, and remained resilient in 2022.

North America

For buyers in North America, international acquisitions have remained consistent and have continued to grow in our increasingly globalized society. According to data from Pitchbook, for North American acquirers, cross-border M&A value only dropped by 3% and volume by 10.1% in 2020 compared to the year before. In 2021, cross-border transactions saw a nice boost as pandemic-related volatility finally waned. 2021 was a great year for M&A thanks to low-interest rates, available capital, and the appetite for deals, setting a record of 39,344 deals for $5.1 trillion. However, 2022 brought new challenges for the global market. Interest rates went up around the world, inflation hit record highs, stock markets responded negatively, Russia invaded Ukraine, and many investors took a pause on making moves. As a result, even though overall M&A activity declined last year in both deal value and count, cross-border activity saw an uptick in deal value, especially in North America, where buyers closed on 1,880 deals for $449.8 billion YTD.

Europe

For quite some time now, Europe has been very popular for cross-border M&A activity, accounting for an average of 13% of all M&A deals by North American buyers in the past 20 years. As buyers look for more foreign exposure and robust European markets, offering the potential for European companies to develop into global leaders, North American corporations and sponsors are taking notice. There are also many fundamentally strong yet undervalued companies in Europe, which increases the opportunity to gain better returns from owning European assets.

Asia

Cross-border activity in Asia will continue to be influenced by ongoing pandemic-related restrictions in China. There are concerns surrounding a lack of market-supporting policies coupled with strict COVID lockdowns. Cross-border M&A can be expected to be subdued until China can attain enough stability for investors to even consider the activity. However, it is important to note that lower valuations in such an environment are expected to keep gaining interest from foreign investors and buyers.

At the same time, in India, the level of cross-border activity could see an increase. This is due to India’s rapidly growing market in areas such as technology, healthcare, and finance, which all have been driving deal activity in the region.

The environment for cross-border M&A is also strong in Japan. U.S.-led buyouts are increasingly competing for transactions with Japanese companies that are seeking overhauls to make them more profitable for shareholders. Private equity participation has been on the rise for the past several years.

The Bottom Line

General partnerships and corporations continue to seek growth by adding geographical diversification and tapping into new markets, innovations, and offerings. Investors continue to look for opportunities in foreign markets, even amid regulatory risk and support for onshoring (the relocation of business processes to a lower-cost location inside national borders).

Long-term cross-border M&A activity is likely to remain strong. There may be slowdowns in the near term as challenges and opportunities continue to change, and deal flow in different regions may also shift accordingly. As the key drivers for cross-border M&A have not changed, cross-border deal activity is likely to stay healthy and comparable to previous levels. Buyers will continue to navigate around risks and opportunities in global markets in order to achieve value creation.

If you are considering what a cross-border M&A deal could do for your business, our experts at Benchmark International would love to discuss your options and how we can help open new doors to new regions to benefit your company’s growth.