Negotiating Cross Border M&A

0:00People are asking for more M &A Science, so we're giving it to you. We're increasing our production from once a week to twice a week. Look out for more M &A Science interviews. This is a conversation with Jake Lynn, head of corporate development at Zendet. One of his main roles is to help Zendet grow to new markets. And he spent a lot of time doing M &A in Southeast Asia. In this interview, we talked about best practices when negotiating cross-border M &A. We talked about cross-border M &A, language barriers, managing cultural differences during negotiations, and the integration approach to cross-border M &A.

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1:21Revolutionize your M &A process with Dealroom, the modern M &A solution. Learn more at dealroom. That's dealroom.net. I'm Kisan Patel and you're listening to M &A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M &A deals.

1:56Hello, M &A scientists. Welcome to the M &A Science Podcast. We learn from the best in M &A to uncover proven techniques for enterprise value creation. If you're interested in learning more about the products and services we develop to support world-class M &A teams, or want to get involved with our community of forward-thinking M &A practitioners, visit mascience.com. You can get started by subscribing to our free weekly newsletter for the latest insights and events. Again, that's mascience.com. I'm your host, Kisan Patel, CEO and founder of M &A Science. Joining me today is Jake Lin, head of corporate development at Zendet, a payment infrastructure company serving Southeast Asia.

2:35Today, we're going to talk about negotiating cross-border deals in M &A. Jake, how are you doing today? Good, Kisan. How are you? Doing pretty good. I know, fortunately, we just missed each other. I'm here in Singapore, and you had to travel out of the country, but I'm glad we got an opportunity to make this conversation happen. And I'm still interested in learning a lot of things about doing these cross-border deals. Maybe kick things off the background. I currently lead our corporate development team at Zendit. You can think of us, for those who aren't familiar, we're probably the most similar to like a Stripe or Addy in other parts of the world.

3:06We are a Series D startup. We raised$300 million back in 2022. We're backed by several Silicon Valley names as well. One of my key roles since coming over to Zendit is to really help grow into new markets and help them make inorganic decisions that can allow us to either build new product lines, grow into new markets, and really just make us that leading infrastructure business that helps serve the underbanked, the large population here that really needs that digital uplift. Prior to that, I was living in the States as a tech investment banker, having started my career at VFA Merrill Lynch, covering mainly technology and fintech more specifically.

3:44My journey over to this part of the world was really just a combination of excitement, as well as an opportunity to really grow with a really fast-growing region that I think is pretty much China 20 years ago. That's awesome. That's a pretty big shift. You were in the... Where was it? Bay Area? I was in the Bay Area. Yeah. I was actually in Soma, which is a few blocks away from the Uber headquarters. It was an interesting time because it happened during COVID. We were all working remotely at that point in time. I was just thinking, this was an uninteresting company. I've always wanted to try to start up experience.

4:15I think as an investment banker, one of the things that we do constantly is we assist companies. We create and craft stories for them. Ultimately help them realize a successful exit, whether that's a raise or some kind of M &A situation. And to be able to do that for one company specifically and really hone down and understand the needs and business lines of that specific company is quite rewarding because what you do is immediately reflected in the growth of that business. No ties to the same for it. Like you didn't previously live there or anything. Yeah, I have no roots here. There was a little bit of a risk per se.

4:47Singapore is also the safest country to choose amongst all the countries in this part of the world. It's very cosmopolitan. English is predominantly spoken over here and it's easy to navigate. Any like big changes with that in terms of moving or something that you really miss about home? This is going to probably sound very American, but I do miss American beef. So in Singapore, a lot of things are imported. I believe there's a really strong economic partnership with Australia. So a lot of the imported goods come from Australia. Australian beef doesn't taste the same. It's like grass-fed versus grain-fed and corn-fed over in the States.

5:17Cherries are like$20 box over here. It's ridiculous. People here, they love durians. And durians is like super cheap relative to what you would get overseas. And then all the tropical fruits right here are pretty cheap. So it's an interesting adjustment. Things I miss most about home is probably the food. I mean, certain things you're used to growing up, all of a sudden, they just don't have it. Maybe a good burger and fries. Yeah. In terms of doing these cross-border deals, what is the biggest challenge? Unlike the West, where much of the dealmaking is very institutionalized and counterparties are generally pretty savvy, Southeast Asia is still a little bit rough on the edges.

5:54So terminologies like, for instance, an earn-out or reps and warranties, things that you would commonly see over here in the States and wouldn't be much debate in terms of understanding what they are generally more unfamiliar over here. Particularly if you're dealing with these smaller size businesses or companies where the person leading that company that we're trying to acquire has not had much deal exposure. I think to put a little bit more context, in the US, middle market M &A is generally companies between$50 million to$200 million, like the lower end middle market. Whereas in Asia, anything above$100 million is considered quite big.

6:30The scale of the businesses, the complexity, and just maybe the volume of the types of deals that people have been exposed to here are just not the same as in the States. So instead of using financial jargon to argue or make a statement, it's here, you really got to break it down to layman terms and help them understand why this is something that needs to be put into writing, essentially. That's actually really interesting. So would it be a lack of standardization that, hey, well, don't know what to call to and you have to help define that? It is a little bit of that. Plus, different countries will vary.

7:03If you're talking to a mega multinational company, like the Grabs and Tokos of the World, it has a very different story. They've done a ton of M &A, they've been exposed to international bankers. But a lot of the situations that are worked with are companies that never hired investment banker before, or they've never really gone through a process. And to them, if you think about, even in the States, if you meet someone who just hasn't been exposed to the finance industry, and you talk about earnouts or reps and warranties, they're going to be quite clueless. I think that's what we're dealing with.

7:29but with companies of obviously a bigger quantum. Okay, interesting. It's not like in the US, you have a whole private equity ecosystem and you're running into folks that are pretty seasoned at doing these deals where here you don't even see that volume of deals. A lot of them are going to be more first time doing these types of transactions? It depends. A lot of the deals that I've worked with are with those that weren't sponsor backed or maybe perhaps they hired a local investment banker or advisor. So local being domestically incorporated in that country where they may not have been exposed to the institutional training that someone will get at a whole bracket.

8:02From those, there are certain nuances that is part education, part negotiating, and just making sure that they get what you're trying to ask for. They've got two situations. You've got one where they don't have a banker. One, how do you navigate that? Then we could talk about playing with the local bankers, which probably is an experience of its own. They don't have a banker. You think about it like trying to buy a business from someone who's really just saying, hey, I think my business is worth this much because this really up-and-coming company that just made a news article, sold it for this much.

8:29And there's no rationale behind, hey, what is the fundamentals of your business here? Your financials might be way off. There's a lot of things you have to consider and assumptions. It becomes, I just want the same exit sort of mentality. That's probably more on when you're talking about valuation. If you're talking about hiring lawyers to actually get a purchase agreement done, I think putting money in an escrow or certain clauses that you want to instill that are protection on both sides, they just might not see the need for such complexity. It's just a matter of trying to explain that to them.

8:58That makes sense. And then when they do have representation, it's a local banker, what are the differences or how do you manage that? One example is in the US, a lot of M &A transactions, companies always buy reps and warranties insurance to protect just in case something they represent and warrant may actually be misstated. That's actually very rare. I'm very uncommon over in this part of the world. I remember there was one situation where we were exploring that even the third-party consultants that we've spoken to are like, wow, this is not very common. So they actually had to bring someone from the States to help look into that situation.

9:29That's just one example of just certain things that we do over here. Over here being stateside is probably not as common in how we do things. But I do think that over time, you're probably going to see more and more consolidation of mindset and views as the world gets smaller. Yeah. Things become the norm. Yeah. Yeah. What about language barrier? Is that ever an issue? It can be. Generally, we all communicate in English, or they have to with me. They don't speak Chinese. But I think the challenge can come two ways. One is sometimes they may speak, but it'll be very broken grammatically, or the accent will be quite heavy.

10:03I almost need someone local to help just be there and just be that middle person to help navigate and translate and just make sure nothing gets lost. Probably the best example is if you visit a foreign country and you're trying to communicate to a cab driver, it's like trying to go from point A to point B. Sometimes that challenge and difficulty and try to convey what you're trying to do, it gets carried forth on deal negotiations too. And even local lawyers that represent them, so-called regional lawyers. There's also issues where we're reading a purchase agreement. We're like, this is written exactly the opposite of what we just verbally talked about.

10:34It takes a little bit of extra work and scrutiny just to make sure that what you convey is actually translated appropriately in writing. And if there was ambiguity, double-clicking, even triple-clicking on what you agreed on and just reporting that writing just to make sure that both parties understand what was agreed conceptually. When you say you get a local person to sit in, who is it? I usually choose someone who is an employee within Zendit, for instance. Let's just say if it's Indonesia, I'll have either someone from my team who's Indonesian that can speak Bahasa to just sit there and help translate or at least help moderate conversations.

11:06Do you have a similar approach when you work with lawyers? Do you find somebody local and speaks language? With lawyers, it's a little bit different. Once you bring lawyers into any conversation, it just becomes very rigid and formal. And even if you ask their role is to help you moderate, the other side won't be comfortable with a lawyer in the room. Whereas if you bring an internal, either someone from your deal team or someone who's representing the post-merger side, it's a lot more comfortable to the other party. Oh, that makes sense. Early on, keep it pretty simple. Otherwise, I think they'll be cautious of what everything they say.

11:39Is there a point though when you do bring the lawyers in? Oh yeah, definitely. A lot of times lawyers are going to be lawyers anywhere you go. You got the commercial side done and then there'll be a legal side that just ends up being supposedly a big deal breaker. And instead of trying to convey that to the other side yourself, it just makes more sense to bring a lawyer on board. And then they may bring theirs and you hash it out. That's fair enough. And it's like working with any deal and dealing with attorneys. How about cultural differences? How does it really affect negotiations? Cultural differences, there's a combination of a few things, but the starkest contrast I've noticed since coming over to Asia was the honorifics are pretty big over here.

12:14Meaning in the States, you can call your father-in-law his first name, and it'd be totally cool. And I think people who are older and more senior, I don't think people have a certain way of addressing them. But a good number of the countries here will actually attach like a kind of equivalent to a Mr. or Miss before the name, especially if they're older. So like in Indonesia, it's like Puck for men, and then Boo for older women. And then in Thailand, it'd be like kum and then in philippines if they're like a lawyer or has some kind of professional certification probably calling like attorney so and so or it's very interesting a little bit foreign especially if you grew up on stateside certain countries probably place a lot more on giving face to the other party one thing i've noticed just in interactions is that to more junior folks when they speak it's super humble i wonder humble is the right word but they give a lot of difference to the older person across the table or just even within organizations.

13:08And in some extent, it feels a little exaggerated just coming from states when we just treat everyone pretty colloquially. When it comes to even negotiating, if you're coming from the states, you're not shy to just be direct and just force your view because that's how you think it should be. Whereas over there, it might not necessarily work because sometimes people don't want to see you to be too confrontational. They might not like that. Even if what you say is right, they just stop listening to what you're saying and more to the emotional aspect of it, irrational aspect of it. And so you really got to have to navigate conversations by just ensuring that there is this, I don't want to say, probably superficial politeness that occurs between parties.

13:47And we just have to make sure that that's continuing to be established. But that said, there are times when the other side may blow up and start yelling at one out, but that's a different situation. So we got key themes like salutation part, just following the formality, making sure you're being respectful. in other little aspects of that, kind of people's seniority and things like that. And then this sort of level of directness. How do you manage that though? You're going to look for little clues or sort of read the room to know how direct you can be or when you need to be direct. And I'm curious because I'm a person with little patience.

14:16That's what I'm wondering. That's the biggest theme I've heard of doing these cross-border deals. Like you need more patience. I'm like, I don't have that patience. How am I supposed to manage this? I want to get paid. I don't want to like wait longer than I need to. So the good news is that we have our stereotypes of them. They have the same bus. and you just got to play to your stereo type and it helps a lot. I call it out and say, Hey, listen, guys, I'm going to have any patience. This is how I do things here. I'm going to get a letter of intent to you by the end of the day. Yeah, there are times where I may look Asian to you, but hopefully I don't think like the way we work things.

14:50I prefer to be direct and efficient and just be straight to the point. And I'll just say it out front. I was like, look, that's my style. But if you have a different way of going about it, let me know, which is forcing them to say, hey, if they say, I don't want to be direct and be indirect, then that's almost kicking themselves in the foot a little bit. Because when you ask a question like that, it's hard to say, hey, I'd rather you not be direct, right? I'm negotiating the situation. That kind of helps. And obviously, I try to make sure that I think when I joined, it was during COVID where a lot of our work had to be remote.

15:18But whenever I get the opportunity, I always try to meet that person in person. It helps soften the edges a little bit. And if they drink, that works even better. You try to do whatever you can outside of the formality of it just to build that trust and relationship. Yeah, it's really interesting. I like being up front and just prefacing things. So this is how we act or move on deals. Do you ever get maybe alignment on timeframes? Is that something you'd actually click into a level of detail around? I'm just wondering because if you say it, but then there's still a vague interpretation of what that means to saying, hey, I like to move fast.

15:48I'm pretty direct versus like, hey, here's like a timeframe. You know, once you get this information, we'd probably turn on LOI in this many days. and then from there, LOI to close, we're looking at this. I don't know. Is there other little more details that you click into or do you just keep it pretty general? Most of my experience is beyond the buy side. So we're mostly acquiring or investing. From our side, we generally move pretty quick. Our teams are pretty lean and we can make a decision pretty quickly. But there are times when we're doing due diligence and whatnot and they may need more time to put their materials together, which is actually quite common in the US too, especially if you're dealing with middle market companies.

16:20They just don't have all their stuff together. And I want to say time is not necessarily a big topic because I are... At least I've been fortunate, probably, because all the deals I've worked with, they've been pretty prompting giving materials. And if anything, it's their side who's actually chasing us on some certain topics because some of the companies that we deal with are probably small enough where we're dealing directly with the founder or their key decision maker. Whereas at a company like Sendit, we have to go for internal ropes to get certain approvals. I would say the challenge there has been more about making sure they understand the expectations that decision making at our firm is not going to be the same as decision making from their shop and that we have to go for certain compliances.

17:03There are certain internal protocols that we just got to make sure everything's all tied up, tidied up before we can actually proceed. So that makes sense. You're getting at best clarity in terms of I need to get the deal done. Do you have an example of a deal where cultural differences either derailed the deal or almost derailed it? I don't have a specific example where a deal was derailed because of cultural differences. There's been colorful conversations between parties, namely the other side, where they had a certain expectation of us apparently promising them we would agree to a certain, I guess, a commercial term.

17:40When in fact, what was actually stated was, we'll look into it. But somehow that was interpreted as, we'll do it, which is not the same thing. we may have said okay we hear you it seems that makes sense but we just need to make sure we understand it and discuss it internally from that side their point of view they may have thought oh they thought what we said makes sense and just forgot the part that we caveated and then that became time wasted to try to go back to the other side and tell them hey just we hear you but that didn't mean we agreed to it so i think relations so that's the big challenge the closest i get to wreak havoc on a deal i think so and don't use sarcasm ever they don't understand sarcasm over here.

18:19We did it. That's probably my tip of the day. I used a lot of sarcasm. I would say jokes are probably the most easily lost in translations. I never joke. There were a few times, and I will give you an example if I recall, where I would be sarcastic internally on my team, and they would actually respond very seriously to it. And I was like, oh man, this just got lost. Okay, so keep sarcasm at the bar. Don't keep in the work of it. Fair enough. I'm curious. So all these countries you've worked with, what countries have you worked with? Because you mentioned Philippines, Thailand. I've worked with Philippines, Thailand, Malaysia, greater China.

18:52It's a combination of countries as well as people from those countries. That ultimately is what matters for a country person representing whichever business we're looking at is hailing from. Philippines is probably easiest to work with in terms of language. A lot of Filipinos, they actually have to speak quite well. And you can actually... You actually wouldn't even have an issue. Like any American going to Philippines actually wouldn't have an issue speaking with them. Indonesia would be okay too, but they generally prefer to speak in Bahasa. that they're more comfortable speaking their native tongue, but you can get by.

19:20When you get to countries like Thailand, that's when the accent gets a little bit heavier. Having an intermediary or someone in between to just facilitate conversations helps a lot. Obviously, the ones that have studied abroad and came back, that's a different story. If you were to look at the other extreme, instead of on the easy side, I can't even name specific countries. You could though, that'd be nice. Like, where does it get tough? Like we just did, I did a podcast interview in Tokyo and oh my God, all the formalities and everything like the whole business rituals and just the nature of consensus on things.

19:52I personally think that's the hardest I've ever heard of. I'm curious what's your take on it? There could be exceptions, but based on the sample size I personally encountered, I would say Thailand might be one of the more challenging ones because they're so loyal to the original relationship person. So that it's a lot of what normally probably works is that someone introduces you to a potential target per se. And then we take over, we start having dialogues, we start negotiating, and then they understand the changes control, right? But I think at least in that specific instance, I was literally ghosted by email.

20:29They didn't want to talk to me directly. We had to actually use the original person who brokered that relationship just to keep that dialogue going. That was a challenging aspect of it because you couldn't transition that relationship over. Whereas with a lot of the other situations, that was actually very okay. Yeah, that's when you got to really dig in and pay attention. That's interesting. If the window's closed, it's hard for you to do much. You actually had to continue to use the mediator, which just was one step additional than what we needed to be efficient. What are best practices? Just here you got these different varying situations, but in terms of getting good negotiations, making the process smooth, what have you learned?

21:06Build trust early on. That's important when you are just another face on the other side of the wall. And especially if you sound a lot more eloquent and polished because she came from my English speaking background and you're using English as a tool to communicate. People naturally have a, they become a little bit more defensive, especially when you're dealing with more local businesses. Meeting them in person and showing them, especially what I try is I try to show them that I'm more Asian.am Western just to create that affinity. That helps a lot. Like I said earlier, don't be shy about communicating your communication style.

21:36So telling a friend that, hey, like if I'm direct, that's, I apologize. East, but I can try to be less directed. I say that in a joking way and people generally open up and are a little bit more open or accepting of how you act. But then again, I'll tell you, I've been told on deal fronts by actually this person from hailing from the Middle East, representing another company we've dealt with that he actually prefers to work with us just because of how direct we are. Whereas it's been painful for him dealing with other parties in other regions when the conversation has to be a lot more nuanced and very passive for lack of better words.

22:06It was funny because I was thinking you mentioned, I was thinking about even within the US like one of the early deals in my 20s, first time dealing with a New York-based company. I didn't like it at first out direct they were. But then after a while, I turned around and appreciated it. And I absolutely love that about New Yorkers. But it just reminded me of that. In terms of tactics of building trust, if you change your English or tone, do you slow down your pace of talking? If there's any things like that that you do... I do slow down and I enunciate my words more clearly. I definitely don't try to do a Russell Peters thing and take an accent.