By Martin Athey, Partner, Transaction Services, Translink Corporate Finance UK
In today’s global deal landscape, opportunity doesn’t stop at borders, but neither do the risks. For acquirers, the allure of international expansion is clear, but cross-border transactions can introduce additional layers of complexity that domestic deals rarely face.
Due diligence has always been the linchpin of M&A success; in an international context, the process and methodology need even more care. It requires a multidimensional approach that blends legal, financial and tax expertise, with operational insight and cultural understanding.
From regulatory gaps to hidden liabilities, the costs of getting it wrong can be steep. At Translink Corporate Finance, we take a proactive approach in navigating the complexities of cross-border diligence to mitigate significant risks and ensure integration success.
The hidden pitfalls beyond the numbers
In cross-border deals, financial and regulatory missteps often stem from assumptions that business as usual in the acquirer’s jurisdiction applies elsewhere. One of the key foundations for the due diligence assessment is understanding any misalignment of accounting standards and methodology.
For example, differences between International Financial Reporting Standards (IFRS) and UK/local Generally Accepted Accounting Principles (GAAP) can lead to confusion around a target business’s financial position due to unfamiliar accounting practices. Furthermore, items that are “off-balance sheet” as standard in local reporting norms can easily be overlooked by an untrained eye.
Similarly, local tax regimes require specialist advisors; acquirers must understand the nuances of the local code to avoid being exposed to unexpected liabilities and ensure they are familiar with the policies and procedures that will be inherited.
We also advise clients to scrutinise debt and financing risks closely. In some jurisdictions, there may be undisclosed guarantees or covenants in local debt agreements, or even capital controls that restrict foreign currency borrowing. Failing to factor in exposure to exchange rate volatility and its impact on historical performance, as well as during the deal execution and integration phases, is another trap that can reshape the future outlook and valuation of the business.
The “soft” factors are hard risks
While financial data is critical, operational and cultural disconnects are often the silent killers of deal value.
Language barriers are the obvious hurdle, but the real risk lies in the misinterpretation of specific terminology and behaviours. For example, assumptions around a seller’s attitude toward the quality and accuracy of information can vary wildly, particularly in developing or low-compliance jurisdictions.
Timing is another subtle but vital factor. We must account for seasonal realities, such as summer shutdowns or religious holidays, which can stall momentum if not planned for.
Operationally, we pay close attention to the supply chain and customer base, for example, if acquiring an SME that has historically shied away from dealing with large corporates. Regulatory differences in customs or logistics can increase costs and delay operations post-close.
Finally, talent retention is paramount. Underestimating cultural differences or imposing system incompatibilities can derail synergy realisation. Losing key local management due to poor communication or misaligned incentives is a risk that must be mitigated before the ink is dry.
Agile scoping and maintaining momentum
One of the biggest challenges in cross-border M&A is preserving deal momentum while conducting rigorous diligence across time zones. An agile due diligence approach is critical.
We break the process into sprints, delivering interim findings every 7–10 days, keeping everyone updated rather than waiting for a full final report. This ensures stakeholders are informed and highlights progress against the critical path, reassuring boards and investors that momentum is intact and no surprises as we move towards completion.
Where possible, we also front-load critical issues. Potential deal-breakers, such as initial thoughts on underlying profitability and any “red flag” tax exposure, can sometimes be considered first. By establishing the headline areas that are important to our client, we avoid getting bogged down in immaterial details.
Crucially, in cross-border scenarios, we take extra care to clarify the intended deal mechanism, understanding any variations in approach and giving our initial thoughts on the workings much earlier in the due diligence process. Communicating the likely impact of these helps align expectations before significant resources are spent.
The role of technology and AI
Looking forward, technology is reshaping how we conduct international diligence. Virtual Data Rooms (VDRs) with real-time access are now standard, but Artificial Intelligence (AI) is providing new ways to enhance efficiency without sacrificing expert insight.
AI is becoming invaluable for the “heavy lifting,” and increasingly to support in areas such as:
- Multi-GAAP reconciliation: Quickly mapping the target’s local GAAP to the acquirer’s accounting framework to flag anomalies early.
- Document parsing: Using tools such as Natural Language Processing (NLP) to extract key terms from multiple contracts in multiple languages (e.g. customer agreements).
- Contextual translation: Translating financial documents while preserving technical meaning to reduce misinterpretation.
However, the human element remains irreplaceable. AI should flag, not decide. It surfaces anomalies, trends, and risks, but it takes experienced human experts to interpret those findings in the context of the specific deal strategy and risk tolerances.
Turning complexity into deal certainty
Successful cross-border due diligence is about more than following a routine process; it is about aligning views and expectations across jurisdictions. By tailoring the scope, diving deep on key risks while touching lightly elsewhere, and leveraging local experience for on-the-ground insights, acquirers can confidently transact across borders and realise the true value of their global opportunities.
Contact Martin for due diligence support on mathey@translinkcf.uk.com
Translink International AG
