Question

What risks and opportunities are involved in international mergers and acquisitions? How do they impact the pricing and valuation of target companies? How do cultural risks impact the achievement of synergy?

Answer 1

Risks in international mergers

1. Exchange rate risk wherein the local currency can work against you.

2. Political risk in the country where you want to set up operations.

3. Taxes and Tariffs

Opportunities

1. High demand in foreign country

2. Cheap labor

3. favorable tax treatment

If the risks and more than opportunities, then the valuation of the target will be lower. On the other hand if opportunities outweigh the risks, then the valuation of the target will be higher.

Cultural risks play an important role. If the cultural of the acquirer and that of the target do not match, then the mergers will run into problems because the style of functioning will be different which will cause negative synergies.