Inorganic growth through acquisitions and strategic alliances

Augusto Cesar Barbosa de Souza

Veirano Advogados, São Paulo

augusto.souza@veirano.com.br

Co-Chairs

Richard Spink Burges Salmon, Bristol; Conference Quality Officer, IBA Closely Held Companies Committee

Luciana Tornovsky Demarest Advogados, São Paulo; Senior Vice Chair and Latin America Regional Forum Liaison Officer, IBA Closely Held Companies Committee

Speakers

Josep Enrich Bartolomé & Briones, Madrid

Kathleen Lemmens Gianni Origoni, Milan

Patricia Montoro Cobles Indra, Madrid

Martin Viciano-Gofferje Gleiss Lutz, Berlin; Corporate Counsel Forum Liaison Officer, IBA Closely Held Companies Committee

Introduction

The session focused on the expansion strategies of companies through acquisitions and alliances, emphasising the strategic and legal aspects that influence growth. It covered the motivations behind inorganic growth, such as increasing production capacity, accessing new markets and acquiring strategic assets. Trends in investment jurisdictions and sectors, including the impact of geopolitics, were examined. The discussion also highlighted the importance of cultural understanding and local legal expertise in managing cross-border transactions. The role of foreign direct investment (FDI) restrictions and how companies navigate these challenges was also addressed. Overall, the session provided insights into the complexities of inorganic growth and the factors that companies must consider when pursuing such strategies.

Discussion topics

Growth strategies

The 'what, where and how' of companies pursuing inorganic growth overseas through acquisitions or joint ventures were explored.

According to panellists, growing and expanding into foreign markets is driven by the need to increase production capacity, access technologies and natural resources, create synergies, diversify and strengthen supply chain and access new, larger customer bases. Depending on geography, establishing local joint ventures may be easier. In export-oriented economies, such as Germany (especially the German Mittelstand), going overseas is essential.

Trends

Jurisdictional and sectoral trends in strategic investments, including the impact of geopolitics on investment decisions, were discussed.

Panellists indicated that current trends in investments are influenced by geopolitical factors, with the EU taking a more assertive stance in foreign policy. The defence sector, information technology (IT) and artificial intelligence (AI) seem to be key areas of focus. Outbound investments are driven by supply chain issues, prompting companies to acquire capacities closer to their customers. There is now a preference for ‘safe countries’.

Geographically, the Middle East and Africa present growth opportunities in sectors such as machinery, industrial robots, fashion, pharmaceuticals, agriculture and design. German companies are investing globally, while China remains an attractive market, particularly for electric vehicles and AI, with the technology industry mainly investing in the US. Investments in Australia are noted, though less so in Africa or the Middle East.

In Germany, there is a significant influx of US technology investments. Latin America has become a key region for major Spanish companies in infrastructure, banking and insurance. Additionally, there is a new trend of Latin American investors in Spanish assets, companies and real estate. These trends indicate a dynamic and evolving investment landscape.

Investment approaches

The importance of local legal expertise and cultural understanding in managing transactions was emphasised.

Comments on this topic indicated that reliable local law firms are essential for foreign investment. In addition to legal expertise, local firms convey cultural knowledge and familiarity with how deals are done locally. There are few firms that can serve multiple jurisdictions and local firms benefit from collaboration with foreign firms. There is a need to adapt to cultural differences and to try to convey how the clients work. When one finds a good firm, they stay loyal.

Investing in cultural awareness, especially for certain jurisdictions (eg, China and Korea) is vital. It is crucial to build rapport with law firms and establish enough trust with them to ensure the advice is well received. According to panellists, acquiring local corporate culture is also important.

The role of law firms is important not only because they understand local corporate culture, but also to ensure that the investors' cultural values are respected throughout the acquisition process, including during the due diligence and negotiation process. Local advisors are expected to provide insight into and properly address issues specific to each jurisdiction. For instance, due diligence exercises need to be customised to the specifics of each jurisdiction and local advisors must provide insight into the issues that may be not so obvious to foreign investors.

Cultural assessment

Strategies for assessing culture and managing people during negotiations and transactions were shared.

Panellists emphasised the importance of understanding the culture of the other negotiators to prevent problems which might jeopardise the negotiation results. Being aware and respectful of cultural differences and trying to predict the business norms and practices seem crucial.

Regulatory Considerations

The impact of FDI restrictions on international transactions and how companies navigate these challenges was examined.

During the panel, it was mentioned that FDI rules, especially in the EU (in addition to those of its members states), are very complex, wide-ranging and affect almost every sector to some degree (eg, 5G, AI, raw materials, seeds and food safety, and defence). Rules keep changing and becoming more restrictive for non-EU investors and go beyond the more familiar antitrust analysis; clients are often caught off-guard by these rules. Even though this issue could be seen as a pure formality (given the low number of blocked transactions), a proper and timely assessment on the applicability of the FDI restrictions (including during deal structuring) and filing requirements is of utmost importance.