Thursday, May 28, 2015

Cross Border Acquisitions

One of the most comprehensive analyses of cross border published in the Journal of Finance and analyzing deals from 1990 to 2007 notes:

"The vast majority of cross-border mergers involve private firms outside of the United States. We analyze a sample of 56,978 cross-border mergers between 1990 and 2007. We find that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market-to-book value tend to be purchasers, while firms from weaker-performing economies tend to be targets."

"Determinants of Cross-Border Mergers and Acquisitions", Isil Erel, Rose Liao and Michael Weisbach  The Journal of Finance, June 2012

A lot has changed since 2007 but we still see the importance of many of these same factors.  A recent Wall Street Journal notes how the dollars strength is causing a resurgence of foreign deals.  (Of particular interest to our Acquisition Finance Course coming up in Amsterdam this December, the article notes that "FedEx cited the stronger dollar in its pending $4.8 billion takeover of Dutch carrier TNT Express N V").  Notice the graph below.  U.S. takeovers of foreign companies are on track to top even last year's record volume.  

Another major factor mentioned in the article is the opportunity to save on taxes by incorporating in more tax friendly countries.  See our blog post Politics, Taxes and Economic Reality.

All the best,


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