Cross border tech acquisitions have been very common in the last decades, but they were mostly limited to the Silicon Valley giants buying European startups and midsized tech companies that showed a great deal of potential. However, lately, it has become very clear that the Californian tech scene has some serious competition from foreign buyers, even when it comes to mega deals. We’ve seen this happen last year in June when the Chinese giant Tencent acquired Supercell. So as the tech world is slowly becoming a global economic scene, it is time to put the focus on the main challenges that occur in cross border tech deals.
While each acquisition can have specific challenges, if you plan all the aspects of such a deal, you will be able to deal with those challenges in a timely manner. Thesechallengeswere best explained in a study performed by the international law firm White Case at the 2017 ACC Spring CLE event. The study was presented by Jason Rabbitt-Tomita, Carrie LeRoy and Michelle Sayer who put together a framework for dealing with these matters. According to them, these are the main areas of focus:
- Due diligence: The acquisition investigations must gather all the information that is critical and confirmatory at each step of the process. This includes everything from identifying FCPA red flags to jurisdictional differences regardingintellectual property, privacy and security.
- Process and timing: The corporate lawyers must consider all factors that could delay the acquisition or affect the usual processes, from the general factors dictated by different time zones and culture considerations, to the corporate approvals and the public company transactions.
- Intellectual property: The focus must always be on maximizing the value of the intellectual property and acquiring the rights and licenses necessary for ensuring the freedom to operate.
- Regulatory approvals: Each home country has its own regulatory institutions. On an international level, the main players are Antitrust, CFIUS, MOFCOM, SAFE and NDRC.
- Tax structuring: In most cases, the tax plan is dictated by whether or not the buyer already has operations in the acquired company’s home country. However, the taxes can also be affected by the location of the IP, and whether or not the target’s tax liability can be affected by transferring or exclusively licensing the IP.
- Dispute resolutions: As you can’t predict all things that could go wrong, you need a dispute resolution plan. Most companies choose to include an arbitration provision in the deal, in order to avoid litigation costs and delays.
Most in-house counsels focus all their efforts on dealing with the factors that could affect the acquisition, and once that is complete, they are taken by surprise of all the post-acquisition challenges. The truth is that home country institutions can have a significant impact on the post-acquisition performance. It is very common for shareholder orientation and property rights protection standards to hinder a company’s performance once it has been acquired by a foreign buyer. It is also very common for local jurisdictions to restrict foreign buyers from implementing their own employee plans, and this is actually something that should be established before the acquisition, especially if the buyers plan to terminate the employees.