Why cross-border M&A deals are no longer unchartered waters for mid-market firms
The world in 2018 is a much smaller place than it was even just a few years ago. When it comes to mergers and acquisitions (M&A), rapid advancements in communications – coupled with greater integration of global financial markets and supply chains – have thrown open the door to international deal-making.
Cross-border activity first began rising with the birth of the digital age in the late 1990s, before peaking in the early years of the millennium. During 2003-2007, cross-border deals accounted for nearly 40% of all global transactions, according to the Institute of Mergers, Acquisitions and Alliances (IMAA).
Then the financial crisis hit. Amid fears of market-to-market contagion, a more risk-averse climate ensued, and the appetite for overseas deal-making subsided.
A decade later, cross-border M&A is climbing quickly once more, accounting for approximately 30% of global transaction volumes in 2017.
The mid-market spreads its wings
A major factor in this turnaround has been the growing global footprint of mid-market companies.
Traditionally, mid-tier acquisition strategies have failed to translate successfully across borders, with smaller firms lacking the resources and expertise – or indeed the confidence – to engage with overseas buyers or sellers.
However, with the onset of globalisation, increased data, and planning models now allow SMEs to better navigate complex legal and regulatory differences and to mitigate risk. Once a fall-back option for the mid-market, cross-border expansion is steadily becoming a primary growth strategy for many firms.
The US-UK corridor, the world’s largest bilateral corridor for M&A deals, is a particularly well-trodden path. Since 2000, American buyers have led 4,731 acquisitions of UK-based companies – by clear margin the highest number of any country, and nearly three times the combined volume of the four largest EU economies of Germany, France, Italy and Spain.
Britain, for its part, is the leading European acquirer in the United States, generating almost twice the number of transactions of the next largest buyer, Switzerland.
While larger “scale” acquisitions have traditionally been the main target on both sides of the pond, Avondale are seeing a growing interest in smaller, strategic transatlantic deals.
For example, in May 2018, Avondale finalised the sale of Acketts Group, a bespoke supplier of ATM installation and security services, to Cennox. Headquartered in Missoula, Montana, the global banking services specialist acquired the regional business units of Diebold last year.
SMEs in the shop window
We can expect more of the same in the months and years ahead. Cautious optimism regarding President Trump’s economic strategy has provided a boost to the dollar and US buying power. Throw in a weak pound, low interest rates and record volumes of ‘dry powder’ investor money, UK deals have rarely seemed more attractive.
For many mid-tier company owners looking to sell or attract growth investment, now is a golden period to be in the shop window.
But America is not the only foreign buyer with eyes for UK businesses. The country’s reputation globally for innovation, and for producing quality, well-run SMEs, is attracting attention from further afield.
Chinese and Hong Kong-based investors channelled $21.2 billion (£15.1 billion) into the UK M&A market in 2017 – the highest amount on record, and nearly double the previous year’s total.
Of course, there are still certain pitfalls for UK company owners to navigate. For one thing, Britain’s looming breakaway from the EU threatens to dampen overseas interest.
Along with Ireland, the UK has traditionally been the gateway to Europe for Asia and North American investors. Restricted access to key markets takes some of the shine off Britain’s unique offering.
There are also lingering questions around employment. The likely repeal of EU Freedom of Movement laws raises questions around where British firms will find the specialist talent needed for innovation and growth.
Mid-tier UK businesses remain high on investor shopping list, but will need to demonstrate long-term resilience, particularly in terms of their revenue streams and hiring strategy. If they can do that, then this small world is very much their oyster.
Avondale specialise in providing unrivalled expertise in business sales, acquisitions, strategic advice and corporate finance for ambitious businesses – both in the UK and internationally.
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