A Booming Business
What drives cross border M&A?
1. Globalization, which started after World War II, and is driven by technology, travel and the ability to communicate across long distances.
3. Privatization has made a great impact. Before privatization, 50% of the European GNP was produced by state owned companies. But under the leadership of Margaret Thatcher in the 1980s and early ’90s, the idea that private companies were more efficient in handling many industries, such as railroads, transporta¬tion, utilities and more, took hold. This trend toward privatization will do nothing but continue.
4. Free trade, Common markets – The European Economic Community has created much larger markets in Europe. Larger markets demand larger companies to fulfill the need, and smaller companies really don’t fit, they are either acquiring or being acquired.
5. ‘Middlestand’ effect – Middlestand is a German word commonly used in Europe to reference medium sized companies. After World War II a large number of companies came into being. Now these excellent, mid market companies are 50 years old and their owners are in their 70s with little choice but to sell. There is virtually no developed IPO market in Europe, and these companies must find a solution to succession.
6. The Euro – The Euro is going to be good for cross border M&A. The common currency will keep the cost of capital low. Right now the reserve bank rate in Europe is at 2 percent. The Euro will allow an efficient bond market to be created. Acquirers are going to be able to go around the banks and deal directly in bonds, with no currency risk and no conversion cost, etc., etc.
Hazards to Avoid
2. We’re so well known in the industry, we’ll hear about anything for sale. Wrong! You will be the last to find out about companies for sale because your competitors don’t want to tell you.
3. We’ll contact the industry association, they’ll help out. Wrong! Industry associations have hundreds of members and small staffs, and can’t be seen helping one member over another.
4. We know of two great companies, but we saw them at the industry meeting and they are not available. Wrong! Just because the company was not available yesterday does not mean it is not available today. Go back to those who said no, and keep going back.
5. We’ll go to the trade fair in Frankfurt and see who is for sale. Wrong! Trade fares are all about marketing…buying and selling are not part of the agenda, and if you broach the subject of a sale, no one will talk to you.
6. We’ll ask our investment bankers to bring us deals. Wrong! You’re looking for middle-sized deals. If the investment banker is large enough to have European offices, he or she is generally not interested in the $40 million deal in Southern Italy. He won’t bring you mid-market deals.
So what is the right approach?
Set the strategy: Why are you going there? Are you diversifying? Do you need to expand technologically? Do you need market access or distribution in Europe?
- Typical business sources: Extel in U.K., Compass in Europe, and foreign government agencies.
- Foreign chambers of commerce.
- Foreign trade associations, which will tell you who is there and often provide lists divided into industry categories.
- Subscribe to trade publications – great sources of information that publish annual directories, which can be of immense help in a search.
- Trade fairs. Visit the European trade fairs for each industry. These are great channels to finding out what there is and what could be available.
You really do need to know what the integration plan is before the acquisition is complete. You have the final dinner, shake hands and celebrate, then wake up (with a slight hangover), and you have a new company in Spain. You’d better know how you’re going to integrate your new company before you go to bed!
The 1999 merger of Fox, Twerdahl, Lehmann & ; Co., Inc. into C.V. Lemmon & Co., Inc. has brought seasoned cross-border experience to the service of our clients. The acquisition objectives of overseas buyers in the United
States, as well as the overseas objectives of American clients are now handled by our International Division. More information may be obtained by calling Charles V.Lemmon at (214) 207-9694 or by e-mail at firstname.lastname@example.org.