Valuing a company in a cross-border acquisition

Quick answer. Valuing a foreign target rests on the same methods as in France, discounted cash flows (DCF) and comparable multiples, but with adjustments specific to international deals: a country risk premium in the discount rate, currency risk, restatement of local accounting standards to a homogeneous base, and consideration of taxation and tax treaties. Neglecting these layers leads to overpaying or poorly securing the operation.

Buying a company abroad, or acquiring a target from France, does not change the logic of valuation but complicates its execution. The cash flows to discount are denominated in another currency, the accounts follow other standards, and the taxation of profit repatriation differs. Here are the adjustments that distinguish a cross-border valuation from a domestic one.

Cross-border valuation relies on the classic methods, which must be mastered before adding the international layers.

The discounted cash flow method, or DCF, remains the reference: it projects future flows and discounts them at a rate reflecting the risk. The comparable multiples method completes the analysis by relating value to an aggregate, such as gross operating profit, from comparable transactions or companies. These two approaches frame a value range, a subject we cover more broadly for the French market.

The work specific to international deals consists of adapting each of these tools to the context of the target country, without changing their mechanics.

The first cross-border adjustment concerns the discount rate.

A flow located in a riskier country must be discounted at a higher rate, by adding a country risk premium to the cost of capital. This premium reflects the political, monetary or legal instability of the target country. The same flow is therefore worth less in a high-risk country than in a stable economy, because its discounting is harsher. Calibrating this premium is one of the most sensitive points of the valuation, as it weighs heavily on the final value.

The cost of capital must also take into account the local financing structure and the risk-free rates specific to the monetary zone concerned.

The currency of the flows is a dimension in its own right of the valuation.

A target that generates its flows in another currency exposes the buyer to currency risk: the value converted into euros varies with the exchange rate. The valuation must specify in which currency the flows are projected and at what rate they are converted, and consider variation scenarios. For a lasting acquisition, this risk can be partly hedged, but it must first be identified and costed in the valuation, as it can significantly change the justified price.

Local accounts and the taxation of profit repatriation require careful restatement.

The target's accounts may be prepared under local standards different from French standards or IFRS. Before any comparison, they must be restated to a homogeneous base, neutralising the method differences on depreciation, provisions or revenue recognition. This work joins the consolidation logic described in our article on the European holding and IFRS consolidation.

Taxation is the other decisive layer. The local tax rate, the withholding tax on dividends paid up to France, and the bilateral tax treaties that avoid double taxation change the net flow actually available to the buyer. A profitable target whose profits are hard to repatriate, after a high withholding tax, is worth less than a target whose flows repatriate freely.

A cross-border valuation rarely fails on the method, almost always on the adjustments. The classic mistake is to apply a domestic DCF to a foreign target, without integrating country risk, currency and repatriation taxation, which leads to overvaluing.

Our approach is to start from the proven methods, then methodically layer each international dimension: country risk premium, currency, accounting restatement, taxation and treaties. International due diligence, legal, tax and employment depending on the country, secures these assumptions. The cross-border acquisition often combines with structuring through a holding, which links the valuation to tax consolidation and the LBO. Well conducted, the valuation becomes a negotiation tool, not a mere formality.

A French group wanted to acquire a target in an emerging country and had valued it with a DCF calibrated as in France. The analysis revealed two blind spots: the absence of a country risk premium, which strongly overvalued the flows, and a high withholding tax on dividends, which reduced the net flow actually repatriable. After reintegrating these adjustments and examining the applicable tax treaty, the justified value fell significantly. The buyer renegotiated the price on this basis, avoiding overpaying for a target whose profits were hard to repatriate.