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its vascular business, which was sold to Abbott Laboratories for $4.1 billion. Such concessions can
have important implications for cash flow and ultimately shareholder value.
The basis for antitrust laws in the United States is found in the Sherman Act of 1890, the Clayton
Act of 1914, and the Hart-Scott-Rodino Act of 1976. Regulators assess market share concentration
within the context of the economics of the industry. Factors such as ease of entry for competitors and
the potential for collusion on pricing and production levels are also considered. In the end, antitrust
enforcement is an inexact science that can have a major impact on M&A activity. When assessing
potential acquisition candidates, the potential for regulatory challenges—and an estimate of the
valuation impact of likely remedies—must be considered in the screening and ranking process.
Cross-Border Deals
In 2007, cross-border M&A transactions totaled $2 trillion and accounted for 41% of global M&A
deal volume. Although total deal volume increased only 24%, the $2 trillion of cross-border deals was
a staggering 78% increase over 2006. In addition, the value of deals with U.S. firms as the target was
$100 billion greater than deals where U.S. firms were the acquirer ($360 vs. $254 billion). 17 By any
measure, the level of international M&A activity is increasing as the globalization of product and
financial markets continues. All of the issues discussed in this chapter apply to cross-border deals, in
some cases with significant added complexities, which are discussed briefly next.
Each country has its own legal, accounting, and economic systems. This means that tax and antitrust
rules may vary greatly from U.S. standards. While there is a move to standardized financial reporting
via International Financial Reporting Standards (IFRS), there is still great variability in the frequency
and reliability of accounting data around the world. Unfortunately, developing nations, which offer
some of the best acquisition opportunities, have the most problems.
Doing M&A transactions across borders brings additional risks that have not been previously
discussed. These include currency exchange risk, political risk, and the additional risk of national
cultural differences. If a company is going to execute an effective international M&A strategy, all of
these must be identified and quantified, as they can have a significant impact on synergies and the
implementation timetable. It is critical for a bidder to have capable financial and legal advisers in each
country where it is considering acquisitions.
Successful Postmerger Implementation
The section on track records makes it clear that most acquisitions fail to meet the expectations of
corporate managers and shareholders. This dismal record is attributable to various causes, including
ill-conceived acquisition strategies, poor target selection, overpayment, and failed implementation. In
a study of 45 Forbes 500 firms, Smolowitz and Hillyer (1996) asked senior executives to rate a list of
reasons for the poor performance record of acquisitions. The following were the five most frequently
ranked factors:
1. Cultural incompatibility.
2. Clashing management styles and egos.