M&A bankers have always been jet-setting types, needing to travel and work around the clock in order to ensure a deal completes. However, if you’re working in the UK or U.S., senior bankers advise getting to grips with one crucial element in 2014 – culture.
This year is anticipated to see a flurry of cross-continental M&A deals, with Asian companies expanding beyond their borders into the territory of more developed nations, according to a panel of senior investment bankers speaking at Cass Business School last week. For often Western educated bankers working on deals with companies in unfamiliar countries, the key to ensuring a deal doesn’t fall through is understanding cultural differences, they said.
“It’s less about U.S. companies buying into Europe and more Asian companies expanding beyond their borders and buying into Western Europe or Africa,” said one senior investment banker who cannot be named because of reporting restrictions at the event. “I’m not optimistic about the European domestic market, but in-bound deals to the UK and Europe will only increase this year.”
Around half of M&A activity in the UK currently comes from in-bound cross-border deals, claimed another senior investment banker who says there are likely to be “more and bigger cross-continental deals” in 2014.
As well as China, Japanese firms are also ramping up their international buying in the face of a shrinking domestic market. One of the key skills of any investment banker working on these deals is understanding their motivations, which differ from U.S. firms. “Japanese firms are taking a much longer term view – they want the right opportunity, but not for a short term boost to revenues, which is often the motivation of U.S. firms,” said another senior investment banker. “Chinese firms, meanwhile, want to move quickly – they realise that Europe and Africa offer huge opportunities that are not going to stay open forever.”
The challenges facing investment bankers, therefore, is not just about getting the financials of the deal correct, but ensuring a cultural fit. “There’s a definite cultural focus these days; the initial challenge of any deal is getting to grips with the culture of a potential client, understanding who the key decision maker is and what happens behind the scenes. Often, they’re buying into a market they don’t really know, and cultural sensitivities are easily overlooked.”
This is, of course, not a new concept. The 2006 book Managing Across Cultures by Susan Schneider and Jean-Louis Barsoux claimed that the main reason an M&A deal fails is not simply because of different behaviours and values across cultures, but that their importance to those cultures is underestimated and something seen as irrelevant to one culture is significant to another.
However, the importance of understanding these cultural differences will only increase if the anticipated pick up in cross-border M&A happens this year. “In fairness, the Chinese are a lot better at taking a more stand off approach than other countries,” said another senior banker. “In the UK a lot of what you’re buying in the tech and pharma space is intellectual property, so to come in and say ‘you are my minion and must do what I say’ is not necessarily the best approach to getting value out of your acquired business.”