Emerging trends and best practice in cross border dealings · Growing middle class in BRICS (Brazil, Russia, India, China & South Africa) and MINT (Mexico, Indonesia, Nigeria & Turkey)

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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

In-House Counsel Day 2015 2

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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


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


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


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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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



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

9In-House Counsel Day 2015

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


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


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


DLA Piper M&A Global Trends Guide


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Key Contacts


Bryan Pointon

Partner

T: +61 2 9286 8464

E: [email protected]

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


Emerging trends and best practice in cross border dealings · Growing middle class in BRICS (Brazil, Russia, India, China & South Africa) and MINT (Mexico, Indonesia, Nigeria & Turkey)

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