One bit of urban folklore that we have all heard is attributed to Willie Sutton. When asked why he robbed banks, he supposedly said, “Because that’s where the money is.” Sutton later denied originating the saying but like Dooley Wilson, Edward Murphy, and others, he will be remembered for what was said rather than what was done. (Extra points if you know whom Dooley Wilson and Edward Murphy were.)
What does all this have to do with mergers and acquisitions? Simply said, M&A in this age is international. Why? Because that’s where the money is. A Mergermarket report in 2017 found that only 44% of the deal value in M&A for the first half of 2017 was in North America. Additionally, deal value in Europe was up 30% while deal value in North America was only up 6%. Not including parties outside the US in a search for potential buyers is leaving serious opportunity and money on the table.
A non-US company searching to make acquisitions is more likely to be a strategic buyer rather than a purely financial buyer like a private equity firm. A strategic buyer is looking to expand its customer base, add to its product line, or maybe even take out a competitor. Not that PE firms don’t make strategic acquisitions; some PE firms will use acquisitions to complement companies already in their portfolio. The net result is higher valuations in the deal usually come from strategic buyers.
There’s more to international M&A than just money. Understanding the culture is important. Another bit of urban folklore has a deal in France fall apart because the companies could not agree to use tu/toi, the informal version of you, or vous, the formal version of you in the office. In the past we at SiVal saw a Japanese firm get outmaneuvered in deal by a Swiss firm simply because the culture in the Japanese firm prevented the management team from moving fast enough to make the deal happen. Making the culture work for you can make a deal that much more successful.
What motivates non-US buyers? Access to US customers is still a huge attraction for companies with some success outside the US. In many cases, the non-US firm is looking for additional technology, intellectual property, customer access, or products that complement their existing product lines. Having a U.S. based operation, particularly a Silicon Valley one, opens up many market opportunities for overseas companies. Transforming a company outside the US into a US-based company can create additional opportunities for an exit later in the life of the company. Additional success in the US can make a non-US entity that much more diversified and attractive. As long as we are on clichés, “If I can make it there, I can make it anywhere.”
Not all aspects of international M&A are favorable. Some add to the complexity. The legal and process issue becomes more complex in cross-border deals. Deciding the country that has jurisdiction over the transaction can be daunting. Understanding who, besides the shareholders, needs to approve a deal can be more complex outside the US due to regulatory concerns and ownership structures that management in the US would rarely encounter. International deals may be more complex but opening access to additional buyers, sellers, and partners can make the extra effort worthwhile.
What does this mean for you? Even if you are a small to mid-market firm, including international buyers in your M&A process is critically important in today’s market. Not thinking outside the borders of the US is leaving opportunity, value, and ideas behind. To potentially maximize your return, look for an M&A advisor who has the knowledge, experience, and capability to drive a process that canvasses the globe.
To learn more about how SiVal Advisors can work with you to make your M&A more successful, please contact us. We would like to learn more about your challenges and opportunities.
Solution to Extra Point question: Dooley Wilson was Sam, the piano player in Casablanca. Ingrid Bergman never said “Play it again, Sam.” Edward Murphy was an engineer who developed technology used in aeronautics and the space program. He is remembered for the law attributed to him rather than for what he did.