What are your top tips for ensuring the success of a cross-border deal?
For me, the most important key to success is having a global network, internally and also externally. Mitsubishi started off as a trading company, and so it has over 200 bases of operations around the world. Their main responsibility is to nurture and expand our networks in each region. When doing cross-border deals, having knowledge on the ground is very important—we need to engage with our local stakeholders from our internal global network. And we also need to use our relationships with our joint venture partners. There are two reasons for this: first, it helps us mitigate risk, especially monetary exposure; second, we can collect even more information from these partners and add it to our internal network.
The second factor to success is having full knowledge of the sector you operate in. This includes anything from understanding what the future holds, what the likely trends in demand and supply are, to analysing competitors and profiling customers. Cultural integration is definitely something we need to bear in mind—it's a very important factor. We need to work together with our investment partners to overcome the cultural gap. But it’s not something that can be done in a day—we need to acknowledge that it can take a few years for all cultural differences to be smoothed over.
Finally, you need to make sure you’ve put together a good deal team. This isn’t just about the internal deal team, but also about making sure you have the right investment partners as well as tax, finance and legal advisers. Together they ensure we have the right intelligence to make a success of our investment.
In your opinion, what are the key risks of cross-border M&A?
Cross-border deals are certainly more risky. One such risk is currency fluctuation—what makes this particularly difficult is that it is near impossible to manage. One other risk of cross-border deals, especially when going into an emerging market, is overpaying for assets as a result of increasing competition in these markets. But an even bigger risk, at least in the copper mining industry, is the boom that the natural resources industry is experiencing. This has had some tangible effects on the cost of capital and operations, so that the total cost of acquisition is much higher than it was ten years ago.
That’s not to say that cross-border transactions don’t also represent great opportunity. In the sector I operate in, at least, most of our business is conducted across borders. It’s very much our job to cross over [borders].
Where do you see M&A in the natural resources and mining sector taking place over the next two years?
The hot spots for M&A, in my opinion, will still be Chile and Peru, if not over the next two years, then over the next five years. This is mostly because of the amount of natural resources available in these countries and the quality of the copper. To the list of M&A opportunities, I would also add Central Africa, for example Zambia, and parts of Asia, including Cambodia and Papua New Guinea for the next decade.
In my view, North Americais likely to see a decline in M&A activity [in the sector]. This is because as a region it is not only a production area, but also a consumption area. So, their appetite for export is quite limited compared to other regions. Another reason is that North America has very strict regulations for extraction.
The report, Cross-border M&A: Perspectives on a changing world, is published by Clifford Chance and includes analysis from the Economist Intelligence Unit. It can be downloaded here.
