M&A Synergies Framework: Due Diligence Checklist—Environment

This is a brief checklist of environmental factors to address when evaluating merger and acquisition synergies between two firms. For a more detailed discussion, see M&A Synergies Framework—Environment.

Public Acceptance

Foreign Relations. A country’s relationship with that of the target company’s country can make or break a merger.

    • Be well informed about your home country’s relationship with the home company of the target. Government disapproval of a merger causes resistance which may inhibit the success of a merger. In some cases, a country may oppose a merger completely.
    • Check out Marsh’s political risk map. The Political Risk Map, created by Marsh (a risk management company), scores countries based on their level of political risk. This map may help you determine the political, operational, and economic risk of the country you are expanding in. Figure 1, below, is a screenshot of the political risk map for 2018.

Figure 1. Political Risk Map 2017

Source: https://www.marsh.com/content/marsh/political-risk-map-d3/prm-2018.html#

Public Perception. The public’s reaction to a merger may provide helpful information to the merging companies.

    • Consider the public’s likely reaction toward the merger in both companies’ home countries. The public’s reaction may foreshadow the outcome of the merger. Listen to their concerns and take them into account when making plans for the future.

Logistics

Location. The physical location of a company can cause problems for merging companies.

    • Think carefully about the physical location of your Target company. Companies located in rural areas take longer to travel to. This could cause problems during the integration stages of a merger as people travel between company locations. It could also cause problems with new employees moving to that location.
    • Consider the location of the new headquarter for the merged company. Choosing the headquarter location of a company means choosing the time zone your company will primarily operate in. This can cause difficulty for international business meetings which often leads to employee dissatisfaction.

Regulatory Differences. The regulatory differences between cultures can cause unexpected challenges.

    • Know who makes the rules and what those rules are. Many countries have takeover panels that have specific rules for doing deals in their country. Other countries have a government department focused on takeover deals. Learning the rules of these organizations and committees will help with a smooth takeover process.

 

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