Following the surge of mergers and acquisitions in the final quarter of 2016, many attempted to predict whether 2017 would follow suit. For instance, the Financial Times anticipated that the increase in mergers and acquisitions would carry into 2017. Similarly, JP Morgan forecasted that companies would adapt and cross-border deals would continue to surge, despite political changes and uncertainty, such as the Brexit referendum and the change in administration in the United States. In fact (and as predicted), the growth of cross-border transactions has been significant. Bloomberg Law reported that in 2017 thus far, there has been a total of 5,041 cross-border deals that have either been announced or proposed. These deals have been reported to be worth over $1.17 trillion in value. The latter amount already exceeds the total value of cross-border deals from 2008 to 2013. If this rate is maintained for the rest of the year, 2017 may be a record-breaking year for cross-border transactions. The record-breaking year was in 2007, which saw cross-border mergers and acquisitions worth a total of $2.24 trillion.
One of the reasons for this rise in number of mergers and acquisitions is the increased desire to diversify. Particularly, where there is domestic political uncertainty, companies are more inclined to look abroad. However, international deals also pose their own unique issues, which in turn requires companies to consider various factors. The Deal Room noted certain considerations to be cognizant of when dealing with cross-border parties. One consideration is how tax and antirust rules vary between the regions. The differences in laws will likely affect the value of the investment. In line with varying tax and antitrust laws are differing accounting practices between multiple jurisdictions. If the parties to a deal do not agree on the particular method to use, the value of the target company could be adversely affected. It was suggested that one possible way to mitigate some of the risks associated with conducting cross-border mergers and acquisitions would be to conduct due diligence well in advance of closing a deal.
Time will tell if this upward trend will continue and if, in fact, 2017 will in fact be a record-breaking year for cross-border deals.
The author would like to thank Monica Wong, Articling Student, for her assistance in preparing this legal update.
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