Considerations for an International Acquisition
After 10 years abroad, I still get giddy about working on international acquisitions & IPOs. They are more nuanced to dig into & establish new accounting bases & processes, and I enjoy that challenge. But they are not all fun and games...
International acquisitions pose challenges that companies operating locally would not have encountered to-date. I list a handful below but I could keep going and going like the energizer bunny!
If you are a CFO or FD in the midst of an acquisition, on either side, educate yourself about these topics. It's way better to get ahead of them than to clean up a mess after the fact.
GAAP differences - Across borders, statutory GAAP can vary - even & especially between European countries. The legacy FS of the acquiree likely will not be on the same GAAP basis as your current reporting GAAP. This should be investigated during the due diligence process to make sure you understand the balance sheet you are purchasing . There are ongoing implications to this as well, more below.
Statutory obligations - Congrats! You have completed an acquisition, done your due diligence, and translated the acquired BS into your reporting GAAP. Guess what? This doesn't mean you can put the statutory GAAP out of your mind. The legal entities that continue to exist abroad will have ongoing regulatory filings (such as VAT or corporate taxes) which rely on these statutory financials. So how do you manage? Keep reading...
Resource assessment - What will your finance & accounting team look like post- acquisition? Does your acquirer team have the bandwidth & expertise to take over the local reporting obligations? Do you keep the local teams on board to manage this going forward and report into the parent entity? How will the reporting packages & communications work between the teams? Is it clear who is responsible for the ongoing GAAP conversion ledger, and how can you make this conversion process most effective?
Systems assessment - What ledgers & subledgers are being used locally? Is there a regulatory reason the legacy systems might need to be maintained, even if you consolidated in your parent ERP? For example, in Germany registered entities are required to keep all books & records in German & on servers in the country. If you keep the subledgers but ditch the ledger, how to do get the right APIs in place to automate your bookkeeping?
FX differences - When you travel, it's fun to collect bank notes of different colors & sizes. I can tell you, collecting different currencies in your TBs for consolidation is much less fun... Are your systems equipped do the fx calculations for each transaction (or use a monthly estimate)? What about convert from functional to reporting currency during consolidation? Do you now have large fx exposure in other currencies (like bank loans) that you need to consider hedging?
For those who can relate, which topics resonated most with you? What else would you add? (I may need to add it on to part two on this topic)