What made this acquisition a little more unusual was that Imperial Smelting Company was an Australian company—and National Smelting Company was a British company. The acquisition represented one of the earlier significant cross-border transactions in the history of mergers and acquisition. In the same year, British company Lever Brothers merged with Dutch company Margarine Unie to form Unilever. Unilever engaged in a number of cross-border transactions in the 1940s, two of them with US companies Frosted Foods and Pepsodent. But it took another forty-five years after the merger of National Smelting and Imperial Smelting for a blockbuster cross-border transaction to take place. This time it was the merger of British company Unilever with US-based company National Starch & Chemical in 1974.
Fast forward, though, another some 45 years into the future, to one spring morning in 2018, when I walked into my office in Greenville, South Carolina at 4 a.m. to start the formal closing process of a cross-border transaction on behalf of a global electronic components manufacturer named AVX, headquartered in South Carolina. Acting for AVX, my firm, along with our partner firms based overseas, completed the acquisition of a dozen different entities in seven countries by 9 a.m. that morning.
The deal required more than six months of complex planning and carefully orchestrated coordination on the closing date—not made easier by the need for corporate actions to occur simultaneously in time zones from India to China to the UK to Mexico—and a deadline to complete everything before the NYSE opened in the U.S. Despite the complexity involved and real-time communication required with our partner firms “on the ground” in seven countries to complete the transaction, it was not a particularly unusual transaction, considering the times. Today, cross border transactions take place with amazing frequency.
What has led to the amazing ease with which cross-border M&A transactions can be conducted around the globe, so seamlessly and so frequently? There are a few newer, regional policies that have made things simpler in cross border transactions, such as the European Economic Community (EEC) opening of internal borders in 1992 for countries in Western Europe. On the other hand, cross border M&A has become more difficult in other respects — for example, the number of jurisdictions with merger control regimes has more than doubled from approximately 70 in 2006 to more than 150 in 2018.
What, then, explains the exponential increase in cross-border M&A deals over the past 25 years after a slow beginning?
Three very simple changes have taken place in business that have driven the increase in cross-border M&A. In fact, these changes underpin the increasing globalization of business generally.
1) A common business language
Throughout the six months of pre-planning and coordination for the AVX acquisition, I spoke (in English)—often daily—with attorneys in Germany, Austria, Romania, India, China, and Mexico. English is increasingly the common language of global, multi-country business transactions. When working on international deals, it is incredibly easy to reach out to partner firms across the world – whether in Asia, South America, or Europe, and to find attorneys who are accustomed to working with US companies and transacting business in English. As U.S. lawyers, we benefit from the versatility of foreign firms, and the versatility of lawyers who can both work with local business executives in the local language and transact cross-border business in English (and often, multiple other languages). Without a common language, coordinating the logistics of an M&A deal involving many countries—simply conducting conference calls with all of the foreign firms involved—would be difficult.
We tend to take for granted the fact that by and large, most people in business are able to communicate with one another, despite the different countries of origin, in a few common business languages. Today, business is conducted around the world among different countries, different industries, and different types of professionals with ease. Spanish is the common language of some twenty countries. French continues to be a common language in many European countries, and in some African and Mediterranean countries. In countries or regions with multitudes of regional languages and dialects (such as India and China), a language of business will emerge.
Ease of cross-border transactions requires a common business language. And while it may be a U.S.-centric trend for large, global deals with a U.S. acquirer or significant U.S. component, English becomes the common language currency of the deal.
2) The rise of near instant communication technology
Writer and inventor Arthur Clarke said “Any sufficiently advanced technology is indistinguishable from magic.” Most of the pre-closing coordination and logistics for my seven-country deal was conducted by email and conference calls typically involving at least four and sometimes 20 or more people. The speed with which we are able to conduct business today is truly magical. Sometimes it’s hard to comprehend that swift communication by telegraph was only expansively possible in the U.S. by 1861. It’s not by accident that significant mergers and acquisitions of companies began to take place in the 1870s—about a decade after we were able to conduct business around the globe, and within the same day.
Besides the thousands of emails coordinating and planning for the AVX acquisition, much of the actual day of closing was conducted by email. In Germany, the document that confirmed that the seller received the purchase price was emailed to the German notary, who confirmed receipt and then sent another email to the German law firm as well as my law firm and seller’s counsel. In Romania, counsel received emails from London when the documents were signed, which initiated the process for Romania counsel to complete the local closing in Romania. In India, signed documents had to be emailed to five directors in India, who each then had to confirm receipt by email and then email local counsel in India to confirm closing. Without emailing, the complexities and time-constraints of coordinating deals among multiple companies in different countries would have been deeply challenging.
Of course, instant communication has its downside. Many of my good friends and clients at global companies lament the fact that their email boxes are constantly filling, whilst they sleep, 24-hours a day. As a cross-border M&A lawyer working with businesses across the world, I sympathize with those who never experience an empty email inbox. On the other hand, I’m grateful for the ability to send a late-night (US time) email to Europe, and to wake up to an answer.
3) Greatly mitigated risk
Our world is shrinking, in the sense that our communication and transportation speed compresses our geography. A UK company can easily visit an acquisition target in Japan to conduct due diligence, inspecting the target’s facility and interviewing management in a matter of days. An Australian company can set up a data room and conduct an auction with bidders from around the world. It is quite common for business executives to travel frequently and extensively, and virtual data rooms are used in almost all M&A transactions.
A basic tenet of M&A is that due diligence decreases risk. Mobility of people and information facilitates due diligence in cross-border M&A transactions and decreases the risk of doing a deal. Moreover, money now flows almost instantaneously. As long as planning occurs to place funds in bank accounts in relevant jurisdictions and currencies, closings can occur in multiple countries with certainty that fund flows can be initiated and confirmed as received same-day, if not within hours.
In his study of globalization, international economist and researcher Richard Baldwin calls what has happened — the rise of highly mobile capital and of the technology tools we now take for granted — “the second unbundling.” With this “second unbundling,” the keys to successful cross-border M&A deals — whether the sector is chemical, automotive, advanced materials, or IT, and whether the countries involved are Japan, France, and Switzerland, or Australia, China, and Brazil — become easier to achieve.
With the “second unbundling,” an M&A attorney’s role becomes more strategic, focused on project management and swiftly facilitating a transaction, using the technology and communication tools that we now have at our fingertips. C-suite executives who pursue cross-border transactions need advisors who are at ease managing large teams spread through many countries, delegating carefully, and being attentive to input from local counsel to discover and address any dangers that are lurking in the target business. Every cross-border deal involves meticulous planning to bring all the pieces together seamlessly at closing. The “second unbundling”, however, allows us to complete cross-border transactions with amazing speed and increased certainty.
Most M&A attorneys can agree with Thomas Jefferson’s philosophy: “I like the dreams of the future better than the history of the past.” But when I stepped into that office that Spring morning to finally launch the AVX closing — and on many other mornings since then — there’s no doubt that the future of the deal relied on the history of the past’s great transformations.