[Column] Seven pitfalls to face in cross-border M&A

✅ Roughly speaking

• 🌏 Cross-border M&A: Post-contract integration is the most difficult phase
• ⚠️ Underestimating cultural, regulatory, and human resource barriers increases the risk of failure
• 🤝 The key to success is thorough mutual understanding before signing the contract and careful integration support after signing the contract
• 📊 Comprehensive evaluation including not only financial due diligence but also cultural due diligence is important

Introduction

This time, we will explain the challenges that Japanese companies often face when conducting M&A in Southeast Asia, particularly Malaysia.

According to JETRO's Survey on Japanese Companies Expanding Overseas (2023) , there are 1,427 Japanese companies operating in Malaysia.
On the other hand, a survey on the awareness and reality of Japanese companies regarding overseas M&A conducted by Deloitte Tohmatsu Consulting in 2018 showed that the success rate of overseas M&A was only 37%, with over 60% of companies responding that they "could not be called successful."

In the M&A brokerage industry, a deal is often seen as a sure sign of success, but in cross-border M&A, the post-merger integration (PMI) process is the crucial stage that determines success or failure.
Even if a company is financially attractive, there are many cases where the expected synergies are not realized due to cultural differences, complex regulations, and difficulties in human resource management.

We have organized the failure patterns we have seen in the field and summarized what you should pay attention to.

Seven pitfalls Japanese companies tend to fall into when conducting cross-border M&A

Disregard for local culture and business practices

There are cases where companies proceed with the understanding that "business is universal," and ignore differences in religion, language, decision-making styles, and working styles.

Malaysia is a multi-ethnic country with Malays (approximately 69%), Chinese (approximately 23%), and Indians (approximately 7%), each with their own cultural background (Department of Statistics Malaysia 2023 data).
There are many situations where business practices that Japanese companies take for granted do not apply, such as consideration for Islamic prayer times, religious events such as the Lunar New Year and the fasting month of Ramadan, and values that emphasize family.

Even if management can communicate in English, Malay or Chinese is often the dominant language at the field level.
In addition, the speed of decision-making and the approach to delegating authority can be very different from Japanese companies.

In Malaysia, some companies prefer top-down decision-making, while others place importance on consensus-based agreement building, so it is not possible to categorize them as "Malaysian style."
For each target company, you need to carefully understand its organizational culture.

Overlooking hidden regulatory risks

Malaysia has unique regulations that do not exist in Japan, such as restrictions on foreign investment and the Bumiputra policy (a preferential policy for Malaysians).
Depending on the industry, there may be upper limits on the percentage of foreign investment, and specific licenses and permits may be required.

According to the guidelines of the Malaysian Investment Development Authority (MIDA), 100% foreign ownership is generally permitted in the manufacturing industry, but there may be restrictions on the foreign investment ratio in the service and distribution industries.
For example, in the retail industry, the ratio of foreign capital may be limited depending on the sales floor area and number of stores.

In addition, the Bumiputra policy may require certain industries to have a certain percentage of Malay shareholders and directors.
If you proceed with a contract without understanding these regulations, you run the risk of disrupting business operations or incurring unexpected costs after the acquisition.

In particular, manufacturing, retail, and service industries may be required to notify MIDA and obtain various licenses, and these procedures can take a considerable amount of time and cost.

Excessive expectations of synergies

Malaysian companies tend to have grand visions such as becoming a "gateway to the Southeast Asian market" or "expanding throughout ASEAN," but in reality, most of them only have a presence in the domestic Malaysian market.

Malaysia's population will be approximately 33 million (2023), less than 5% of ASEAN's total population of approximately 680 million.
Acquiring a Malaysian company does not automatically give you access to the entire ASEAN market.

Furthermore, expectations such as "synergy with Japanese brands" and "improved productivity through technology transfer" will be realized through the management efforts of the buyer, and must be considered separately from the value of the target company itself.

If synergies are overestimated and factored into the acquisition price, it will be difficult to recover the investment if the synergies are not actually realized. When calculating the acquisition price, it is important to make a conservative assessment based on the cash flow that the target company will generate on its own.

M&A textbooks state that an acquisition premium of around 20-30% of the target company's intrinsic value is appropriate, but in cases where expectations are high, premiums of 50% or even over 100% can be paid.

Absence of PMI (integration) manager

In many cases, the integration process is carried out in a haphazard manner, with the expatriate staff doing the double-duty and leaving it to the local manager.

Integration requires a wide range of specialized work, including organizational design, system integration, business process standardization, and cultural integration.
It's not something that can be done in a flash.

In particular, in the case of cross-border transactions, language barriers, cultural differences, time differences, and other factors are added, making integration far more difficult than domestic M&A.
We believe that having a dedicated integration manager and giving him clear authority and budget is essential for success.

According to a survey by the Boston Consulting Group (2020) , companies that have a dedicated PMI team have a success rate that is approximately twice as high as companies that do not.

Language barrier

It may be tempting to think that there is no problem because communication can be done in English, but there is a big gap between the English written in contracts and financial documents and the Malay or Chinese (Cantonese and Mandarin) actually used on site.

There are many cases where important contract terms and management policies are not accurately communicated at the field level.
There have been cases where an agreement was reached with management in English, only to find that it was understood completely differently by employees on the ground.

In Malaysia, the Constitution stipulates that Malay is the national language (Bahasa Malaysia), and Malay is the official language for official documents and legal documents.
Even if there is an English version of the contract, the Malay version may be considered the official text, and differences in nuances in the translation may cause problems later on.

Furthermore, even if the terms in legal documents and accounting standards are written in English, they may be interpreted differently in Japan and Malaysia, making it essential to have them checked by an expert.

Miscalculation of the speed of integration

It is not uncommon for integration work that would take three months in Japan to be completed to take more than a year in Malaysia.
If plans are made based on Japanese standards without taking into account local decision-making speed, working styles, system environments, etc., there is a risk that excessive burdens will be placed on the ground and the integration will fail.

In Malaysia, the consensus-building process is different from that in Japan, with many companies placing more emphasis on bottom-up coordination than top-down.
Other factors that influence schedules include the number of religious events and holidays, and a culture that values time with family.

Malaysia has around 15 public holidays per year, with 11 at the federal level and additional holidays for each state.
In addition, Muslim employees often have longer lunch breaks due to Friday prayers, making it unrealistic for them to work at the same pace as in Japan.

We believe that we must be careful because rushing things too much could result in opposition from those on the ground, which could actually delay the integration, which would be counterproductive.

Loss of key personnel

There are cases where key executives and engineers from the target company leave the company after the acquisition is announced.
In particular, in the case of owner-managed businesses, the influence of the founder and family is strong, and there can be a series of employee turnover due to anxiety after the acquisition.

The mere fact that a company is being acquired by a foreign company is a major source of anxiety for local employees.
Concerns such as whether the salary system and evaluation system will change, whether they will have to work under a Japanese boss, and what their career path will be lead to resignations.

According to a survey by EY (Ernst & Young) , an average of 47% of key employees leave within one year of an M&A, and 75% leave within three years. Additionally, academic research (SSRN paper, 2025) also shows that the turnover rate before an acquisition is 19.7%, rising to 28.6% after the acquisition (a 45% increase).

If an acquisition results in the target company losing its human resources, which are the source of its competitiveness, the investment becomes meaningless.

Learning from real-life examples

Important lessons can be learned from successful and unsuccessful cross-border M&A cases.
Here we introduce some representative examples based on publicly available information.

[Success Story] Roche x Chugai Pharmaceutical (Success in building a long-term relationship)

Swiss pharmaceutical giant Roche acquired 50.1% of Chugai Pharmaceutical's shares in 2002, making it an equity-method affiliate.
In 2008, the company subsequently increased its stake to 59.9%.

What is unique about this case is that the two companies had a long-standing business partnership prior to the acquisition, and the M&A took place after approximately 30 years of mutual understanding.
Even after the acquisition, Chugai Pharmaceutical maintained its brand and management independence and avoided rapid integration, which allowed it to maintain its competitiveness in the Japanese market while successfully leveraging Roche's global network.

Chugai Pharmaceutical's sales for the fiscal year ending March 2023 will be approximately 970 billion yen, approximately 2.8 times the sales for the fiscal year ending March 2002 (approximately 350 billion yen) before the acquisition. This is a good example of how building long-term relationships can lead to successful M&A.

lesson:

• Building long-term relationships (approximately 30 years of partnership) is the foundation of our success
• Respecting the independence of the target company even after the acquisition
• A slow, gradual approach to integration

[Failure Case] Nidec x Omron Automotive Electronics (Difficulties in Integration)

In 2019, Nidec acquired Omron's automotive business for approximately 100 billion yen, but the integration proved difficult and the company recorded an impairment loss of approximately 80 billion yen in the fiscal year ending March 2021.

In an interview after the acquisition, Nidec Chairman Shigenobu Nagamori recalled, "The differences in corporate culture were greater than we had imagined," and "Many former Omron employees left the company." The clash between Nidec's culture of efficiency and speedy management and Omron's culture of technology and solid management meant that the integration took time.

While this is an example of domestic M&A, it shows that cultural differences can be an obstacle to integration even between Japanese companies, suggesting that even greater difficulties can be expected in cross-border M&A.

lesson:

• Cultural differences are large even between companies in the same country
• Cross-border transactions require even more careful cultural due diligence
• The risk of failure increases if integration speed is too fast

[Lessons Learned] Takeda Pharmaceutical x Shire (The Challenge of Large-Scale Cross-Border M&A)

In 2019, Takeda Pharmaceutical acquired the Irish pharmaceutical giant Shire for approximately 6.8 trillion yen, the largest cross-border M&A ever by a Japanese company.

After the acquisition, Takeda Pharmaceutical was saddled with huge debts (over 5 trillion yen) and proceeded with asset sales and large-scale cost reductions to improve its financial health.
Although there were concerns in the market at the time of the acquisition, management has developed a clear integration plan and is implementing it in a phased manner.

As of the fiscal year ending March 2023, Takeda Pharmaceutical's sales have grown significantly to approximately 4.3 trillion yen (compared to approximately 1.8 trillion yen in the fiscal year ending March 2018 before the acquisition), and the integration is underway, but it will take some time to assess it as a complete success.

lesson:

• Clear integration plans and execution capabilities are essential for large-scale M&A
• Conservative pricing that takes into account financial burdens is important
• It should be assumed that integration will take several years

To avoid these pitfalls

The following approaches are considered effective in addressing the above challenges:

Ensuring sufficient time for preliminary investigation

We believe it is important to not only conduct financial due diligence, but also "cultural due diligence," which essentially evaluates compatibility in terms of culture and organization, regardless of whether it is done on a large scale and called due diligence.
It requires a process of taking time to understand the management's values, decision-making style, employee work style, and organizational culture.

If possible, it is ideal to have a "mutual understanding period" of several months to a year before considering M&A through business partnerships, agency agreements, etc. As the Roche x Chugai Pharmaceutical case shows, building a long-term relationship increases the success rate.

Collaboration with local experts

Having a network of trusted local experts in the fields of Malaysian law, tax, accounting and human resources is essential.
In areas where Japanese common sense does not apply, the knowledge of local professionals becomes important.

Conservative pricing

It is important to position synergies as "additional benefits if realized" and to evaluate them conservatively based on the cash flow generated by the target company on its own.
You should avoid buying at high prices based on excessive expectations.

Generally, an acquisition premium of around 20-30% of the target company's intrinsic value is considered appropriate.
If you exceed this amount significantly, you should carefully examine the basis for your claim.

Pre-planning for integration

Rather than starting to think about what to do after the contract is signed, it is recommended that you start formulating an integration plan in parallel from the basic agreement stage.
By specifying the selection of the person in charge of integration, the structure of the integration team, the division of roles, the schedule, etc. before the contract is signed, a smooth integration will be possible after closing.

Polite communication

For important matters, you should also consider providing explanatory materials in the local language as well as English.
It is also important to use diagrams and visual materials to communicate accurately across language barriers.

Realistic scheduling

It is necessary to set a realistic integration schedule that takes into account local working styles, decision-making speed, religious events, etc.
Rushing things by Japanese standards could end up being counterproductive.

It is generally said that cross-border M&A integration takes 1.5 to 2 times longer than domestic M&A.
You should expect that a job that would take six months to complete in Japan could take 12 months in Malaysia.

Pre-design of retention measures

It is important to take measures to prevent the loss of important personnel by coordinating key personnel's employment contracts, incentives, and continuation of their positions before signing the contract.

Specifically, it is effective to meet with key executives individually before announcing the acquisition to clearly communicate their post-acquisition treatment and roles, set retention bonuses (remuneration paid for staying with the company for a certain period of time), and clearly outline career paths.

Are you fully prepared for your M&A project?

Use the checklist below to see where you stand today.

• □ Have you secured a mutual understanding period of at least six months with the target company?
• □ In addition to financial due diligence, do you plan to conduct due diligence on cultural and organizational aspects?
• □ Have you designated a dedicated person to be responsible for the integration?
• □ Do you understand Malaysia's foreign investment regulations and Bumiputera policy?
• □ Have you established a collaborative system with local legal and tax experts?
• □Have you considered measures to retain key personnel?
• □ Is the integration schedule realistic and takes into account local conditions?
• □ Have you overly factored in expected synergies when calculating the acquisition price?
• □ Do you have a plan to explain and communicate to employees of the target company?
• □ Has the post-integration governance structure (board of directors, management committee, etc.) been designed?

If you can't check three or more boxes, we recommend that you consult a professional.

Our Approach

As an M&A intermediary and business consultant based in Malaysia, we provide the following support to address the above challenges.

• Three-stage DD support : A careful process that follows the stages of initial understanding → detailed DD → integration preparation
• Emphasis on cultural due diligence : Evaluating compatibility not only in financial and legal aspects but also in organizational and cultural aspects
• Local expert network : Collaboration with legal, tax, accounting, and human resources professionals
• Multilingual support : English, Japanese, Malay, and Chinese
• Pursuing a fair price : Supporting a rational evaluation without excessive expectations of synergies
• Post-integration support : Even after the contract is concluded, we will provide on-site support for two years.

We aim for successful integration, not the number of deals closed.

summary

Cross-border M&A is a powerful tool for Japanese companies to grow in the Southeast Asian market, but the post-contract integration process is the key factor that determines success or failure.

As a survey by Deloitte Tohmatsu Consulting shows, the success rate of overseas M&A is only 37%, and the reality is that more than 60% of companies assess it as "not a success."
If you overlook cultural differences, regulatory complexities, and the difficulty of human resource management, not only will you not realize the expected synergies, but you may also risk suffering significant losses.

On the other hand, there are also cases where companies have achieved great success by building long-term relationships and going through a careful integration process, such as the Roche x Chugai Pharmaceutical collaboration.

By understanding these pitfalls in advance and undergoing thorough preparation and a careful integration process, the chances of success in cross-border M&A are likely to increase significantly.

We provide consistent support from before to after the contract is signed so that our clients can feel that their M&A was a success five or ten years from now.

Information about the first consultation (free)

We will provide advice from a local Malaysian perspective on questions regarding cross-border M&A and consultations regarding projects currently under consideration.

• Duration: Approximately 60 minutes
• Method of implementation: In person (Kuala Lumpur) or via Zoom/Teams
• Cost: First session free
• Confidentiality: We will strictly adhere to this

Please feel free to contact us first.

frequently asked questions

Q1: What is the fee structure for M&A intermediaries?

A1: It depends on the scale and content of the case. We will explain in detail during the initial consultation. Generally, we adopt a tiered fee structure consisting of interim fees and success fees, and we are flexible in terms of integration support. Also, just like real estate agents, we receive agency fees from both sellers and buyers, and target companies and investors.

Q2: Can you handle small-scale projects?

A2: Yes, we can respond flexibly depending on the scale of the project. First, please tell us the details of the project during the initial consultation.

Q3: What exactly does integration support involve?

A3: We will provide services for 24 months after closing, including formulating an integration plan, advising on organizational structure, proposing measures for cultural integration, regular monitoring, and advice on issues that arise.
We will support your integration process through monthly visits, quarterly reviews, and on-demand consultations.

Q4: Do you support other Southeast Asian countries besides Malaysia?

A4: While our main base is in Malaysia, we can also handle M&A projects in neighboring countries such as Singapore, Indonesia, Vietnam and Thailand in cooperation with local partners.

Q5: Will the contents of my consultation be kept confidential?

A5: We have signed a strict non-disclosure agreement (NDA) and are thoroughly managing information. The contents of your consultation will never be leaked to a third party.

Q6: How long does DD take?

A6: It depends on the scale and complexity of the project, but the standard period is estimated to be 3-6 months for the initial understanding phase, 2-3 months for the detailed due diligence phase, and 1-2 months for the integration preparation phase.

Q7: Can you also arrange a site visit?

A7: Yes, we will provide support in Malaysia, including on-site inspections of target companies, factory tours, and arranging interviews with management, for which there will be a fee.

Q8: Is it okay if I'm not good at English?

A8: Please rest assured that we provide support in Japanese. We will also provide explanations and interpretation in Japanese for important contract documents and meetings.