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What Are International Mergers and Acquisitions?

A merger occurs when two companies agree to combine forces to become a single, new company.
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  • Written By: H. Terry
  • Edited By: Jenn Walker
  • Last Modified Date: 20 August 2014
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International mergers and acquisitions are when a company joins or purchases another company and does so across national borders. Though the terms are often used together, sometimes even reduced to M&A, a merger and an acquisition are not the same. A merger is when two companies, usually of similar size, agree to combine forces and to become a single new company. Some mergers are in name only, so-called in order to avoid ill-feeling or panic over what is truly an acquisition. Acquisitions involve a different power dynamic — one company buys another and absorbs its assets.

Another name for these deals is global mergers and acquisitions. Another term, cross-border mergers and acquisitions, can be used to mean the same thing, although it is perhaps more frequently applied when the two countries involved are neighbors, however.

There are two main ways in which multinational companies benefit from international mergers and acquisitions: ease of transition into the new market and improved economies of scale. A company might enjoy quicker access to local assets, logistical support, market know-how, and brand name awareness — factors that can greatly assist a company's establishment in a new market. The other major benefit, economies of scale, is relevant to any type of expansion and refers to the cost advantages that larger companies commonly hold over smaller ones.

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These mergers and acquisitions also tend to encourage foreign investment. Investors frequently perceive investing abroad to be less complicated, and perhaps less risky, when it is through a multinational company that also operates in their home country. This can help to bring new money, technologies, products, and services into countries, though local competition can often suffer if multinationals come to dominate a market. As with domestic markets, there are many heated debates over the limits that should or should not be set regarding the expansion of big businesses.

Business mergers and acquisitions in general are often complicated, but international ones can present some unique legal and political challenges. While many countries are liberalizing their international economic policies, others are moving in the opposite direction. Some countries have very strict regulations related to foreign companies buying or combining with local businesses and, in certain industries, forbid the practice altogether. As the world continues to globalize, rules and restrictions are in constant flux. There are now many consultants who specialize in helping companies navigate the seas of ever-changing information necessary to conduct such mergers and acquisitions successfully.

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Discuss this Article

Mor
Post 2

@indigomoth - The thing about mergers and acquisitions though is that they often result in people being fired, just because it's difficult to completely run a new company without installing some of your own people.

This probably isn't as much of a problem with international mergers, but I'm sure it still happens. Particularly if the company being acquired was in financial trouble. I think they will often fire people just to look like they are being proactive!

So, while it can be a good thing, it is not universally good for the employees. Unfortunately, it is often a very stressful and uncertain time, as I know from experience.

indigomoth
Post 1

I know companies are often unprepared when they expand into a new country. There are all sorts of legendary screw ups that have happened.

My favorite is the car company that tried to sell a car called the "Nova" in Spain.

Of course, in Spanish "No Va" means "doesn't run" so that was a spectacular failure.

If a company uses mergers and/or acquisitions to extend into other countries though, they get the benefit of local knowledge. I imagine a Spanish car maker would know better than to name the car that, for example!

Plus, it is just better in general to use local labor and provide local jobs rather than move in a bunch of people from your own country. It looks better and is just generally a more decent thing to do, I think.

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