In the 15 years since its launch, the Switzerland-based company Eden Springs has made 77 acquisitions, all in Europe and most outside Switzerland. To deal with this volume of transactions, the company, which sells watercoolers and related technology, has established a team that identifies risks and works through a standard due diligence checklist. "Good preparation saves a lot of mistakes," says Ranaan Zilberman, Eden Springs' CEO. "We know exactly what we are going to check when we carry out due diligence on cross-border acquisitions."
To conduct its due diligence, Eden Springs uses a mix of global advisers and local experts who understand the language and the nuances of the business environment. "When you are acquiring a target in a different market, you have to assume that you don't understand everything and take the position of a student for a while," says Mr Zilberman. "There are many factors to consider, including labour laws, regulations, benefit schemes, antitrust issues, unions and transparency in reporting. In a cross-border context, these issues are even more complex."
Eden Springs has made several acquisitions in Eastern Europe, which have posed specific challenges from a reporting perspective. "If I look at the books of a company in Western Europe, there is a good chance that the auditors have reflected the situation on the ground relatively well," explains Mr Zilberman. "When you work in Eastern Europe – with entrepreneurs, rather than with corporates – they have their own way of reporting and you need to take that into account."
One approach that Eden Springs has used to reduce the risk in a cross-border deal is to avoid making a full acquisition. "Sometimes we strike a deal of 51/49 or 60/40 equity stake, and we give the local entrepreneurs an incentive plan to run the business for a few years with the potential to exit," says Mr Zilberman. "That creates a win-win situation: we have the time to learn about the company and the market, and the seller also derives benefits."
Although none of the company's acquisitions have been failures, there have occasionally been mistakes, such as lower than expected growth, or reported data that did not match the reality. A key pitfall to avoid, according to Mr Zilberman, is the "sin of pride": acquiring a company in the belief that you can run it better than the existing management. An acquisition has to be made on the basis that it will provide some kind of leverage, whether in terms of operational excellence, IT systems or access to new customers. Many transactions go wrong after the deal has been signed because of difficulties in integration.
The key here, believes Mr Zilberman, is speed. "Uncertainty is the enemy of any acquisition," he explains. "We try to finish all the changes in less than 90 days. In order to do that, everything needs to be prepared in advance. Before we finalise the acquisition, we know more or less how the integration plan is going to end."
