Supplementary Document to the Nine Actions for Successful Cross-border M&A Compiled to Present Roles Expected of CFOs, Executive Officers Responsible for Legal Affairs and Outside Directors in Companies’ Cross-border M&A
June 17, 2019
In light of the Nine Actions for Successful Cross-border M&A released in March 2018, the Ministry of Economy, Trade and Industry (METI) held discussions on the roles expected of management, in particular focusing on CFOs, executive officers responsible for legal affairs and outside directors, in carrying out cross-border M&A while taking into account the duties and expert knowledge of such personnel. METI then compiled the discussion results into a supplementary document to the Nine Actions for Successful Cross-border M&A to present such roles in a more specified and clarified manner.
1. Background to the preparation of the document
As many Japanese companies are recently becoming aware of cross-border M&A as an important and effective tool to achieve global-level business growth, an increasing number of Japanese companies tend to embark on cross-border M&A. Meanwhile, as cross-border M&A is often a highly challenging goal, many companies cannot fully achieve their anticipated results.
Against this backdrop, in FY2017, METI inaugurated the Study Group for Japanese Companies’ Cross-border M&A and, since then, bringing together experts, has been holding discussions on challenges that Japanese companies are facing in M&A. Based on these discussion, METI compiled key points that Japanese companies should understand in order to effectively take advantage of cross-border M&A along with case examples into a report titled “Report on Discussion Results of the Study Group for Japanese Companies’ Cross-border M&A” and a document titled “Nine Actions for Successful Cross-border M&A.”
In light of the details of the Nine Actions for Successful Cross-border M&A, METI held discussions on the roles and actions expected of management in carrying out cross-border M&A while taking into account the duties and expert knowledge of respective positions of such management, in particular, focusing on three positions: CFOs, executive officers responsible for legal affairs, and outside directors, who, as well as CEOs, play important roles in developing corporate growth by taking advantage of cross-border M&A. METI compiled the discussion results into a supplementary document to the Nine Actions for Successful Cross-border M&A to present such roles and actions in a more specified and clarified manner, aiming to provide a more specific and practical reference that helps Japanese companies in embarking on cross-border M&A.
2. Purposes of the preparation of the document (those focusing on CFOs, executive officers responsible for legal affairs and outside directors; expected methods of utilization)
CFOs, executive officers responsible for legal affairs and outside directors of companies are basically stakeholders, as well as CEOs, who should be committed to efforts for improving mid- to long-term corporate value, although there are differences among them as executive officers and supervisors thereof. Accordingly, when companies intend to embark on cross-border M&A, these officers and directors are expected to play a constructive role, taking a panoramic view of the whole of corporate management, including examination of potential risks involving such M&A and measures for addressing such risks. These key players are also expected to have the mind of a business owner who takes necessary actions with a panoramic view of the whole of corporate management in conducting cross-border M&A so that their companies are able to improve corporate value of target overseas companies and lead to an outcome of global-level growth. To this end, METI compiled important key points for these key players into a supplementary document.
In preparing the document, METI held interviews with experts, including those who serve or served as a CFO or executive officer responsible for legal affairs in Japanese companies proactively engaging in cross-border M&A and those who serve as outside directors in such companies, and compiled the results of these interviews into sections titled “Opinions of Corporate Management” of the document.
METI expects that the case examples and other information shown in the document will trigger companies now tackling cross-border M&A to start holding internal proactive discussions, consider necessary efforts for them to lead the results of cross-border M&A to corporate growth and raise momentum to practically make use of such case examples.
3. Key points of the supplementary document
Roles expected of CFOs
- Leading role to be played in formulating strategies and visions
- Ascertaining of a broad range of elements and risks in improving corporate value
- Awareness of dialogues with stakeholders involved in capital markets
- Taking time to complete elaborate preparation
- Confirmation of valuation to not make it becoming an armchair theory derived from a conclusion
- Discussions on the optimal means and schemes for fundraising
- Holding of clear decision axes that are not focused on acquisition alone
- Confirmation of post-acquisition procedures, not considering acquisition as the sole goal
- Ascertaining of the current situations that staff engaging in M&A are facing so as to avoid focusing on numerical values alone
Roles expected of executive officers responsible for legal affairs
- Commitments to formulation of strategies and other initiatives as a member of a management team
- Discussions with other management officers concerning necessary risk taking
- Building of a trust relationship in which staff involved in business operation always rely on them
- Taking advantage of experiences and knowhow learned in the legal affairs department
- Awareness of proactively making use of outside advisers
- Provision of full-fledged surveys for consistency between the growth story and strategies or purposes of acquisition
- Holding of clear decision axes for growth in holding discussions
- Full development of a global-level system for risk management
- Regular monitoring of post-acquisition situations
Roles expected of outside directors
- Understanding of the roles expected of outside directors and sharing them with other officers
- Encouraging companies to discuss risk taking necessary for growth
- Securing of the flow of information so that they can collect information
- Clear positioning and consistency of corporate strategies or visions and M&A
- Holding of sufficient discussions on unexpected risks and a scenario for addressing such risks
- Confirmation of appropriateness of price calculation
- Conducting of dynamic and continuous actions and monitoring toward merger
- Implementation of risk management involving acquired companies
- Reflection of past experiments and leading the lessons to the future
- Study Group for Japanese Companies’ M&A Overseas Compiles Two Documents, Report on its Discussion Results and Compilation of Nine Actions for Successful Management Taking Advantage of M&A Overseas (released in March 2018)
- Report on Survey for Current Situations of Japanese Companies’ Cross-border M&A Compiled “Cross-border M&A and Japanese Companies - Overcoming Challenges in Cross-border M&A by Insights from leading Domestic and Overseas M&A Players” (released in April 2019)
Division in Charge
Investment Facilitation Division, Trade and Economic Cooperation Bureau