When customs collide: the pitfalls of international acquisitions.

• Author: Bryan, Robert M.

When customs collide: the pitfalls of international acquisitions

Kiel AG, a multinational conglomerate, is based in Switzerland and owns companies all over Europe. In 1988, Kiel's management decided that it was time to come to America, and the company developed a special interest in the construction boom in the southeastern United States.

Through an American business broker, Kiel learned about Georgia-based Edwards Engineering, Inc. (EEI) as a possible acquisition target. EEI, a middle-sized construction company, had 60 employees and $12 million in annual revenues. Joseph Edwards, founder, president, and sole shareholder of the company, wanted to retire. Since he had no children to inherit the company, he resolved to sell his interest, preferably to someone who could actively maintain the business.

Early contacts were promising. Kiel's tentative offer was not far from Edwards' asking price, and Edwards was assured that Kiel would keep the company intact. As the issues narrowed, Kiel was tempted to proceed with only an informal audit of EEI. But finally, and somewhat reluctantly, the European company hired an American Big Eight accounting firm to conduct an intensive preacquisition audit of its target. When the audit was concluded, a date was set for the final, face-to-face negotiations.

Herbert Kiel, Kiel's president, came to the U.S. to personally conduct negotiations. He brought the company's financial controller, the head of Kiel's international real estate development division (under whose jurisdiction EEI would fall after the merger), and the company's Swiss lawyer. He hired a business lawyer from a small Georgia firm to serve as local counsel. Edwards was represented by a large, regional corporate law firm.

Initially, both sides thought that they were close to agreement on all major issues. But after a day or two in negotiations, it became clear that they were growing further apart. Moreover, seemingly minor issues kept blossoming into major ones. After four frustrating days, talks broke off and the Kiel group went home. Both sides were left with a negative impression not only of each other but of the entire process of trans-Atlantic acquisitions.

Today, after almost a year in which to reflect, neither side is quite sure what went wrong. Each wanted to make the deal, took what it thought was a fair opening position, and was encouraged by the other's opening proposals. In addition, all participants were on their best negotiating...