What is International M&A?
International M&A is when an organization acquires a company outside of their home country. A company has many options of which companies they can purchase abroad, from private equity to outright buying the company in question. Often, though not always, Fintalent’s international M&A consultants note that the acquisition process includes a short-term infusion of cash to help keep the business afloat and/or provide for growth opportunities for the future. These acquisitions also generally involve migration into a new currency or new legal system altogether.
The global landscape changes frequently, with many factors at play from culture to language to currency rates and more. To help keep the reader informed, this article will be updated regularly.
There are many ways that companies acquire foreign entities. One of the most common ways is through acquisition – acquiring a company entirely or partially and moving its financials into the home entity. The other common way is through an IPO, or initial public offering – issuing shares in the company and then allowing for foreign ownership to occur.
Many times during these transactions, the entity must move from one country to another, therefore “crossing borders.” This can be extremely challenging to deal with practically due to monetary exchange rates and different currencies; as well as legally due to differing laws and judicial systems.
Organizations must also pay careful attention to their own internal processes if they want their international M&A transactions to be successful. There are several concepts that must be adhered to:
Globalization affects the way a company does business. It means having access to more markets and supply chains, managing across borders, dealing with different countries’ currencies, laws and taxes and handling greater complexity.
Some of the issues involved with international accounting include converting currencies between countries (for example from US dollars to euros), determining how an entity should be consolidated when it has a foreign parent and understanding how to report on entities if an entity changes their presentation currency.
Some of the issues involved with international taxation include reporting income earned in foreign countries that has not been reported for tax purposes, determining the amount of a company’s profit attributable to operations in different countries, determining which income should be subject to tax in each country and figuring out how taxes should be withheld from customers.
There may also be additional issues with third party vendors that support a multinational business. For example, the vendors have to make sure they handle local legal requirements (for example being registered as a money changer or banking services provider) if they are providing those services internationally.
In addition, there are complexities when it comes to dealing with multiple currencies. For example, if managers of a multinational business need to transfer funds between countries in different currencies, they may need to exchange proceeds from one country for currency that will be used in another country. For example, a US-based multinational manager wants to take money from their bank account in the US so it can be transferred to the bank account of a German subsidiary. The exchange rate for the funds will be different depending on the amount and currency of the funds being exchanged.
Companies must make sure that their international financial reporting is set up properly for each country and financial statement line item.
