Question

Describe the process of a cross-border acquisition.

Answer 1

The process behind a cross-border acquisition is :

• Identifying and valuing the target .
• Completion of the ownership change transaction .
• Management of the post acquisition transition.

Identifying the target: The identification of the market is done price to the identification of the target firm. In developed markets, there exists a wide number of publicly traded firms which have a well-defined target markets and the financial information of these firms are also publicly available.

Emerging markets have firms which which can be the target of suitors but require acquisition specialists to identify such firms , which are generally private and government firms and have promising market prospects.

The valuation of the target firm is carried on:

A number of tools are available for valuing firms . These tools are :

DCF (Discounted cash flow approach) , P/E ratio, which indicates how much we are willing to pay for a unit of earnings, M/B ( market to Book ratio).

Settlement of the transaction:

Once, the process of the identification of target is completed , the process starts with getting approval from the management, getting approval form the regulatory bodies and deciding the mode of compensation.

Once, the process of getting approvals is over, then the compensation is made.the availability of cash, the size of the acquisition target, weather it is a friendly or hostile takeover determines the final compensation amount and the mode of making the compensation.

After the transaction is complete, the synergies obtained form the transaction, what new is available now after the acquisition which was not available previously is evaluated.