emerging trends and best practice in cross border dealings · growing middle class in brics...
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17/03/2015
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Emerging trends and best practice in cross border dealings
Andrew Crean
DLA Piper
17 March 2015
Introduction
This session will cover:
Trends in cross border transactions
Trends in cross border transaction management
Key issues and success factors
The project management role
Maximising enforceability of international contracts
Specific country issues
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Trends in cross border transactions
Global growth strategies are everywhere
Significant macro trends driving those strategies include:
Growing middle class in BRICS (Brazil, Russia, India, China & South Africa) and MINT (Mexico, Indonesia, Nigeria & Turkey) countries
Rapid globalisation and enabling technologies have brought Australia closer to the rest of the world
Strong appetite for risk and high growth from emerging economies
Investment into Africa is rising significantly
Significant increase in US inbound investment into Australia
New free trade agreements will drive change
Risk associated with global growth remains unchanged, and in some areas has increased
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Trends in cross border transaction
management
Early and deep dive due diligence remain a key focus (or should!)
Stakeholder and advisor engagement has become more sophisticated
Competition and tax regulation continue to be a significant factor to understand from the outset
One size can fit all for some issues, but not all – know what to call out!
Increased competition for deals, particularly from emerging economy companies prepared to pay over the odds for assets
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Key issues and success factors
Understanding the local legal framework and context at the outset through intelligent stakeholder and advisor engagement is crucial
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Initial scoping study, design, high level
planning
Consult others to understand the culture
and market in which you will be operating
Meet key potential advisors in market – I-Banks, potential future
NEDs, lawyers, accountants
Build best practice implementation steps –
identify what is necessary to understand opportunity in context of
the market
Consider competition, foreign investment, anti-
bribery, third party consents and tax
implications
Meet with key stakeholders – potential
targets, partners, government and
regulators
Establish structure and fine tune implementation
plan
Do deep dive due diligence
Implement project plan, negotiate, close
opportunityHard work starts.
Build local team and implement risk
management framework
Key Issues and Success Factors
Do a deep dive due diligence to address the added complexity
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Corporate & Commercial
Structure for entry
Costs of doing business
Securities compliance
Customary business practice
Financial reporting transparency
Foreign investment rules
Sector regulatory rules
Pensions and health insurance
Owner and executive background check
Cultural implications
Operations
Material contracts
Real estate
Employment & Unions
Intellectual property
IT systems
Finance facilities
Bank accounts
Insurance
Availability of human capital
Risk Management
Geopolitical risk
Sanction compliance
Anti-bribery compliance and risk
Litigation history and future exposure
Foreign exchange controls
Competition/anti-trust
Human rights
Cyber security and data protection
Tax
Preferred structure
Repatriation and exit
Local tax framework
WHT, thin capitalisation
Transfer pricing
Other cross border rules
Transaction taxes
Implementation plan
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Key Issues and Success Factors
Develop an implementation plan from the outset and remain focused on the plan throughout the process
As a first step, identify the key metrics by which "success" will be measured
An understanding of the culture is critical at every point of the process
Build relationships with key stakeholders early – that will help to drive customer and employee loyalty, increase margins and grow your workforce
Empower managers on the ground to make decisions locally, but have an authority matrix in place to ensure that the right people are making the key decisions
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Key Issues and Success Factors
Pay close attention to all issues – problems can become magnified easily in a cross border context
A negotiation process is different in each country – appreciate that
Transaction versus relationship approach
Understand market customary terms
Accommodate another's process and adopt local documents
Be culturally sensitive at every step
Pay due regard to the power and discretion of regulators
But walk a fine line – your global compliance plan must be adhered to but with variations for cultural differences where possible
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Managing technical issues
internationally
Establish a core project team with a suitable skills mix at the outset
Have regular meetings to track progress
Devote more time and resources than you think – you'll need it!
Cross border specialists exist for many issues who can act as your single counsel (and they will draw on in-country specialists)
examples in the M&A context include competition, data protection, outsourcing, global mobility, banking and restructuring
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Joint Ventures
Upsides:
reduces risk inherent in cross-border transactions
can be key in jurisdictions with sensitive foreign-investment controls
Downsides:
managing relationship (and conflicts) with JV partner
less control in decision making
can be difficult to find suitable acquisition target
Important to have clear JV agreement, including clear dispute resolution procedures
Important to understand commercial drivers for each joint venturer
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Intellectual Property
Complex corporate structures and licensing arrangements make it difficult to identify which entities have which IP rights and assets
IP protected in one jurisdiction may not be protected in another
Jurisdictional interdependence – if IP in one jurisdiction ceases to be protected, can compromise IP in another jurisdiction
Registration: if not registered in time, IP may be unprotected
Ensure that in each jurisdiction IP is monitored for infringement
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Employment
Strategically very important
Seek local advice on employment issues
Be aware of historical liability (employee entitlements)
The role of unions and statutory rights of employees differs from jurisdiction
Consider superannuation regime (if any) in the target jurisdiction
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Data protection
Jurisdictions differ on approach to data protection
Barriers to transferring customer details outside jurisdictions (eg. European Economic Area)
Australian companies involved in transfer of personal data outside Australia take on liability of their partners
Note certain jurisdictions may have laws with extraterritorial effect (eg. EU, Singapore, Malaysia)
Cloud data storage may be problematic for jurisdictions which require certain types of data (eg. health/insurance) stored within that country
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Maximising enforceability of
international contracts
Don't take enforceability for granted
Don't take remedies for default for granted either
Important to comply with document formalities (eg. notarisations, powers of attorney, witnesses, transaction taxes) – obtain in-country legal advice
Common law jurisdictions follow "buyer beware" approach. More scope for seller liability in civil law jurisdictions which impose obligation of good faith dealings
Manage execution risk – deposits, bank guarantees, parent company guarantees
Consider arbitration and seat of arbitration
Consider governing law
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Some recent experience
Europe
US
Indonesia
China
Singapore
Africa
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DLA Piper M&A Global Trends Guide
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Key Contacts
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Bryan Pointon
Partner
T: +61 2 9286 8464
David Ryan
Partner
T: +61 2 9286 8674
Mark Burger
Partner
T: +61 3 9274 5586
Andrew Crean
Special Counsel
T: +61 8 6467 6148
Joel Cox
Senior Associate
T: +61 3 9274 5181
Horace Wu
Senior Associate
T: +61 2 9286 8582