9-295-100
Rev. August 7, 1997

Cross-Border Valuation
Cross-border investment has assumed a prominent place among the key decisions facing investors and corporate managers. In today’s increasingly global marketplace, many investment projects, corporate acquisitions and mergers have important international components. The importance of cross-border valuation methods have been underscored by trends toward the relaxation of capital controls, European economic integration, and, since the early 1990s, the opening and growth of Eastern European, Russian, Asian and Latin American markets.
Cross-border acquisitions have been a particularly prevalent form of investment since 1980.
American corporations, for example, increased their acquisitions of foreign targets by 160% between
1980 and 1990. Acquisitions of American targets by foreign companies rose about 50% during the same period. Some transactions, such as Matsushita Electric's $6.9 billion acquisition of MCA, Inc. in
1991, have been quite large. The majority, however, have been well under $100 million in size, suggesting that these transactions are not just the domain of giant multinationals. Evaluating crossborder opportunities is a critical consideration of executives and investors from around the world.
The objective of this note is to review basic methods of valuing cross-border investments and the main issues affecting such valuations. It is intended to be a source of guidance, not a comprehensive review of the topic. The basic principles underlying discounted cash flow techniques for domestic valuations are covered in major finance textbooks.
This note tries to accomplish two things. First, it raises the implications of a number of issues specific to cross-border valuations. These include:
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The choice of currency, foreign (local) or domestic (home), in which to execute the analysis.

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