Europe is catching up in mergers and acquisitions

• Financial crisis has cooled down the acquisition market
• The result: Falling acquisition premiums and new opportunities for strategic investors
• European companies in particular could use their advantages in this situation
• Five factors determine the success of cross-border mergers in Europe

The financial crisis of the last few weeks has cooled off the overheated acquisition market. Strategic investors are profiting from falling acquisition premiums. Initial signs indicate that this could drive mergers and acquisitions in Europe in particular. This is because European companies have to grow through external acquisitions: After a period of declining costs and a return to core activities in 2000 and 2001, European companies are under pressure to become more global. Doing so would generate growth and ensure their autonomy. The results are clear: In 2006, the total value of European M&As was USD 1.59 trillion. On the other side of the Atlantic, this number was USD 1.54 trillion. The success of cross-border mergers is determined by five factors. These are discussed in detail in "think:act content", a publication by Roland Berger Strategy Consultants due out at the end of September.

Success factor 1: Develop inter-European networks early

European companies traditionally have strong international ties. They work closely with foreign companies and are therefore able to tap new markets. Successful mergers are those in which the affiliated companies and their executives know each other well and are familiar with each other's business models and processes. This helps to assess both advantages and difficulties in the run-up to integration.

Success factor 2: Make M&A activities more professional

The opening of Europe's borders and the deregulation in many industries has significantly intensified competition. Many European companies have already had experience with cross-border M&As. They have professionalized their M&A activities and put together their own teams for supporting the integration process. These experts ensure that the best elements of both companies are consolidated and the local strengths of each are leveraged. Companies frequently gain knowledge from smaller acquisitions and joint ventures that they can then apply to larger deals later. Stock exchanges reward these companies with higher stock prices, because they assume that experienced companies integrate better than others.

Success factor 3: See cultural diversity as an asset, not an obstacle

Cross-border mergers are accompanied by a clash of cultures, languages and management styles. Successful European companies incorporate cultural peculiarities into their considerations right from the start. In particular, this means bringing both sides together as equal partners and maintaining transparency. Expected synergies, job guarantees and organizational changes should be communicated openly. Employees of the acquired company must be involved in decisions. This will prevent both a drain of specialists and leaders, and losing face with customers.

Success factor 4: Use regional differences strategically

The understanding of cultural differences affects European companies not only in terms of the integration process, but also in terms of sales. Successful European companies don't simply transfer existing products unchanged over to new target markets, but instead develop new strategies. According to the study, these companies are more willing to allow employees of the acquired company room to maneuver. This way, their strengths can still play a role on the target market.

Success factor 5: Skillfully overcome political hurdles

Along with antitrust hurdles, cross-border M&As in Europe frequently have to overcome political resistance as well. Many European countries want to protect their industries from foreign companies. European companies know these obstacles. That's why even before submitting an offer they try to set the course for a smooth acquisition. They also try to make the advantages of the deal clear, especially for the company being acquired. In this process, it is important to openly and convincingly share the strategy for the merger with the countries involved and the general public.

A nuanced overview of insights from the M&A experts at Roland Berger Strategy Consultants can be found in the publication "think: act content". If you would like a copy, please send an
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