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Overcoming Cross Border Challenges
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 Cross border investment opportunities are becoming more attractive as companies are more likely to come on the selling block at realistic prices than be revived through a refinancing. Gordon Clark lends his insight and experience on how to successfully disseminate the cross-border deal process rather than throw in the towel when things start to look tough.
Having worked on cross-border projects covering Europe, the US and Japan over the past ten years the one thing I have learned (with scar tissue to prove it) is that there ain’t no such thing as a single management solution. This is regardless of sector, as the same rule held true rather whether the project was in automotive, telecoms, consumer or even industrial products.
Surprisingly, basic management disciplines hold good whether the involvement has been hands-on control of a major restructuring or turnaround, operational appraisal of multiple sites targeted for acquisition by a private equity house, or facilitating a logical, but sensitive, joint venture.
However, 9 times out of 10 core controls are missing or left so weak that they are no longer useful for the basis of a clearly defined strategy or the management of the business. It seems that business momentum driven by market demand and seasoned heavily with executive complacency will produce numbers that prove impossible to sustain.
Rapid, rigorous analysis of key financials and their underlying drivers is vital, but rarer than one might think, leading to poor due diligence and investment valuations. Also, market and operational assessments, in parallel with the numbers investigation, are core to painting an accurate picture of the target company.
The current state of the financial markets brings the added complication of multiple lenders, credit insurance and other financial instruments and the attendant covenants aggravated by the absence of new money. These elements must be clarified if any kind of deal is achievable.
 Separating fact from fiction
In cross-border, multi-site businesses it is vital to unravel any underlying and unnecessary stumbling blocks. These could include local management fiefdoms; claimed customer preferences on products and pricing whereby local salesmen can be very creative in promoting ‘customer demands’; and interpretations of trade and employment legislation. This tangled web has to be unravelled quickly and decisively. Objective early stage reviews of these elements must include separating fact from fiction; defining the true core business profile. This process seems obvious, but is often delayed until after the deal is done.
Radical organisation change in the first stages of an acquisition can be problematic and introduce another complex variable to the development of the business. Bring the key managers together to develop the forward strategy and respect their inputs. Decide early on as to whom you will entrust the financial controls, an existing manager/director or a proven outsider.
A combination of group and local incentives will make clear the company expectations of the senior national executives. A willingness by group senior management to communicate directly to each site ensures that a preferred common message is spread as the keystone for further dialogue with employees.
Where confidentiality agreements allow, initial dialogues with customers help triangulate the internal commercial claims of the sales strategy and tactics.
Overriding legislation from say, the EU, can come a poor third place behind national interpretations of the same laws and the power of the local mayor.
In countries such as Belgium, Italy, France and Germany (in that order), there are stringent processes in play designed to ensure that company owners and managers communicate clearly and regularly with employees on a broad range of matters affecting the business, especially where restructuring and redundancies may result. Attempting to avoid or unilaterally circumvent the process will lead to disaster and loss of management control. Start by defining the process and be prepared to seek pragmatic compromises to reduce timescales and mitigate cost.
Is there ever a project too difficult?
If the above issues guide you towards placing a possible investment project in the ‘too difficult’ box then that would be understandable, but perhaps erroneous.
All of them have occurred before and have been resolved using appropriate management expertise and professional advisers. The timescale to complete a deal may prove to be longer, but the outcome can be no less valuable. Deal with the combined local components thoroughly to achieve a group solution. Entry pricing should reflect the complexity of the initial deal and the exit returns may take longer to obtain, but discipline and patience can bring very acceptable outcomes.
So where do you spend the money languishing in your investment funds? If I knew that I would be a very rich man. However, cash more than ever is king. Portfolios are coming to the point where sale is more likely than refinancing and prices should be well below those prevalent in the feeding frenzy of recent times.
Good hunting.
Gordon
Clark, a fluent French speaker, is currently Director of Reviver Limited. He has more than 25
years experience turning around underperforming organisations and
guiding others through growth and expansion. Examples of achievements
on projects include creating and executing a marketing strategy that
ignited sales from £100m to £190m in three years, which generated
further growth to £250m over the next five years; and motivating sales
growth for another project from £40m to £200m over a five-year period
while securing contracts that continued growth to £300m over the next
five years.
Gordon can be contacted on 07801 064 850
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