In the years that Ryan Binkley has been steering the ship at Generational Equity, there have been significant fluctuations in M&A activity. However, while many things change, some continue to stay the same.
For instance, in Ryan’s experience, many business owners still wholeheartedly believe that the only business buyers that will be interested in their company are situated in the same industry, and probably will be their direct competitors. This is an outdated way at viewing your exit strategy in our rapidly evolving market.
The team at Generational Equity has written at length about how business owners need to broaden their horizons and recognize that the optimal buyer could represent a completely different industry, location, or even country.
Cross-border M&A transactions have accounted for a considerable percentage of global activity in recent years. Worldwide deal-making totaled $3.6 trillion during 2017, with over 30% of this accounted for by cross-border deals.
Furthermore, in 2016 $1.7 trillion worth of M&A activity was conducted through the acquisitions of U.S. targets, with around 30% of these involving non-American buyers.
That’s a significant amount of activity conducted by overseas buyers. Business owners considering their exit strategy during this currently booming market should take this on board, as it just goes to show that your ideal buyer could be further from home than you originally anticipated.
Cross-Border Transactions at Generational Equity
Ryan has witnessed this emphasis on cross-border M&A activity first-hand at Generational Equity, with a number of the firm’s clients finding their ideal buyer outside of the U.S. The United States has topped the A.T. Kearney 2017 Foreign Direct Investment Confidence Index for five years in a row, demonstrating its attractiveness to other countries, particularly China and Japan.
Especially in the current strong economic climate in the U.S., its transparent and relatively efficient regulatory environment continues to build the faith foreign investors have in businesses across all industries.
An example of this confidence from Generational Equity’s portfolio was the acquisition of Houzer (based in Hamilton, New Jersey) to Hamat Group in Israel. Hamat was keen to expand their operations to the U.S. and saw Houzer within the context of the thriving economy to be perfect in achieving that goal.
At a similar time, the firm’s sister company, Generational Capital Markets, was also concluding the acquisition of Michigan-based CEC Controls by Wood Group, who operate out of Aberdeen, Scotland. This again would help Wood Group establish a presence in the Midwest U.S., and help grow relationships with American manufacturers.
What are Foreign Investors looking for in Cross-Border Transactions
For those interested in exiting their business and are open to the potential of cross-border deals, Generational Equity’s examples should help give you some indication of why international buyers stretch to find targets in the U.S.
Of course, as mentioned previously, the nation’s consistently strong economy and hospitable regulations make it a great location for this distinct M&A activity.
In their report on cross-border M&A activity, Deloitte highlighted the following strategic objectives:
- Portfolio Diversification – companies and private equity firms are always seeking to spread their revenue streams, and reaching out to different locations is an effective way to accomplish this.
- Cost Synergies – entering a new market via an acquisition can aid cost efficiencies if it results in an increase in sales.
- Access to New Markets/Talent – an obvious benefit, as building your presence in another country allows you to reach a larger, different audience, and discover skilled employees.
- Scale Efficiencies – access to new customers helps your company scale fast.
- Building Distribution Networks – a cross-border deal can build your network of distributors beyond your local market.
- Enhance Production Capacity – if a company doesn’t have the space to expand internally to keep up with growth, buying capacity in another country can help keep their production at the required level.
Why is it important for those selling their business to know these strategies? Because, if you engage with a foreign investor, your M&A advisors will seek to prepare your business to highlight these factors. By demonstrating that your business is capable of fulfilling some or all of these objectives, you are in a much better position to pursue an optimal value.
Moreover, you need to ask yourself if these objectives suit the business legacy you want to leave behind. It is incredibly risky to enter negotiations with an international buyer without an answer to this question.
Also, don’t fall into the trap of thinking that cross-border M&A activity is preserved for billion-dollar deals. As demonstrated by the deals Generational Equity’s advisors oversaw, the progression towards an international market means that cross-border transactions are increasingly available to businesses in the middle market. In this lucrative global M&A market, you would be unwise to limit your options.
Will You Experience a Cross-Border Transaction?
Hopefully, this gives you an insight into the present and future opportunities for cross-border transactions present for U.S. businesses in the current seller’s market. Now, you should recognize that your ideal buyer could be further afield than you initially anticipated, and the most frequent reasons behind why they seek to invest in a company like yours.
Of course, this is just a starting point. Should you engage in discussions with an international buyer when you decide to sell your business, Ryan Binkley highly encourages you to seek the advice of an M&A advisory firm with experience of handling cross-border deals. This expertise will help you efficiently research and prepare materials for due diligence, and overcome the potential cultural and communication roadblocks that can derail these transactions.
If you would like to learn more, Generational Equity’s regularly updated insights offer a valuable resource into the current state of M&A activity in the U.S., advice on how to maximize your value before you sell your business, and how to understand the thought process of buyers, whether they are based at home or across the globe.
To learn more about Ryan Binkley and his thoughts on how business owners should approach M&A, read more on his website.