Cross-border M&A is on the rise and corporates are looking to Asia, according to Reed Smith’s report Wired Up: The convergence of technology, media and entertainment
TME companies in search of growth are increasingly crossing borders, with a decisive majority of survey respondents (57%) saying that their next acquisition is likely to be outside their home market.
Of those businesses in search of cross-border opportunities, 37% say they are most likely to target Asia-Pacific, followed by Western Europe (23%) and North America (17%).
And as regulatory uncertainty strains dealmaking enthusiasm in Europe, interest in Asian targets looks set to rise further.
“Media and technology platforms have long transcended national borders, and the ability to reach global audiences has driven the need for technology companies to build out cross-border platforms,” says Herb Kozlov. “There is a rush to obtain toehold positions in important and emerging markets,” he adds.
Technology M&A into Asia already hit US$14.5bn in Q1 2015, 8% higher compared to Q1 2014. China leads the pack with US$10bn, a year-on-year increase of 20% in deal value and 16% in deal volume at 51 deals in Q1. The deal pipeline into Asia is going to remain busy as recent deals such as US-based KKR’s investment into China-based B2B platform Youxin Hulian Information Technology give positive signals to investors and large online companies such as mobile game developer China Mobile Games and Entertainment are looking for joint ventures with US companies.
On the other hand, foreign companies looking to do deals in the US are getting increasingly frustrated as the market favours sellers and places much of the regulatory burden on the buyer. In addition, there are further strategic and regulatory hurdles to overcome.
“For non-US companies making acquisitions in the US, there is an increased emphasis on advance planning for tax strategies, including transfer pricing and opportunities to locate IP off-shore,” says Herb Kozlov, Global Corporate Head, Reed Smith. “Non-US buyers also need to consider the increased scrutiny of the US government on sensitive technology and data transfers, and the possibility that CFIUS review and approval may be required.”
However, there are steps companies can take to help deals proceed smoothly. For instance, companies can better position themselves against regulatory changes by being more involved in public affairs or trade associations. Also, products and services can be structured so they can adjust to changes quickly, for example in data protection laws. While cross-border deals often come with additional challenges, savvy companies can plan accordingly and make the right connections.