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Distressed M&A

Can cross-border transactions fuel growth in a post-Covid world?

As cross-border transactions pick up pace in the wake of the pandemic, the focus is on strategy for growth

As the markets start to stabilise in the fourth quarter of a challenging year for M&A, a number of significant trends have emerged. An increased focus on strategic investment in cross-border deals, tech as a strong driver industry, and a shift towards protectionism have all come to the fore.

Covid-19 brought with it instability, uncertainty and a drop in mega deals. However, this period of adjustment is coming to an end as global players increasingly identify cross- border M&A as a key value driver and an opportunity to push through deals not previously viable. As Jannan Crozier, Partner in Baker McKenzie's London corporate group explains, there is a window for transactions that “pre-Covid would not have been doable either because of market pressure, or because internally it would have been considered a little bit too much of a bold or risky move.”

However, as governments globally tighten the rules on foreign investment, timeframes are longer than pre-pandemic, and there has been a move towards protectionism. This is particularly evident in China, where tariff and trade issues have seen greater prominence. While this hasn’t stalled deals - in Asia deal value has risen 23 per cent in the year to date  - it has led to increased scrutiny.  “Many countries are using this screening to protect or drive economic concerns to protect their own economies,” says Brian Chia, M&A Partner at Wong & Partners, Malaysian member firm of Baker McKenzie. 

This, along with global supply chain disruption, is leading to more regionalism and, ultimately, growth in cross-border M&A. “If you do not have the setup in any of the regions that allows you to serve it or to benefit from local suppliers,” notes Laurent Bouvier, Managing Director at UBS Investment Bank, “then it certainly makes sense to buy a company that already owns that ecosystem regionally to plug that gap.”

Tech is increasingly driving the M&A market as the world becomes more digital. However, given their appeal as assets, tech companies are staying independent for longer thanks to a variety of different funding sources. As the trend for industrials to become big users of tech gathers pace, the appetite for deals is certainly there. “All bets are off,” says Crozier, “and companies that come out of Covid the strongest will be those that pursue a somewhat aggressive M&A strategy.”

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