Businesses look to overseas acquisitions in hunt for growth
DESPITE ongoing global economic challenges, dynamic businesses have retained renewed appetite for mergers and acquisitions, according to research from Grant Thornton’s International Business Report (IBR).
Mike Redfern, partner at Grant Thornton, assesses the opportunities for Yorkshire businesses:
The market revival in M&A interest that emerged in last year’s survey is still in evidence and is an indication that many corporates which have successfully plotted their way through the global downturn are now seeking to invest the cash resources built up over a period of limited M&A activity.
The results from the 2012 report which surveyed 12,000 businesses in 40 economies, show that of those companies seeking to expand through acquisition in the next three years, 33% expect to do so through a cross-border transaction, a rise from 28% in 2010.
Furthermore, the IBR reveals that the proportion of businesses seeking to grow through M&A, be it overseas or within their own market, has risen steeply over the past two years from 26% in 2010 to 34% in 2012, a likely reflection of the difficulty of achieving organic growth in these challenging economic times.
Businesses in Latin America are the most interested in making an acquisition with 43% considering doing so in the next three years. Only an average of 25% of businesses within the Eurozone is considering an acquisition. As expected companies in the troubled economies of Greece, Ireland and Spain were the least likely (16%) whereas businesses in the Netherlands were the most keen to acquire (56%).
The UK’s appetite for M&A remained healthy, with 32% of businesses expecting to grow through deals in the next three years.
M&A is still one of the easiest and quickest ways to expand internationally and despite uncertainties in the market, many European businesses are identifying potential growth opportunities and preparing to respond to them.
If the euro fails, it will bring down selling prices as happened when the falling sterling against the dollar meant UK businesses could be bought at a discount of previous prices. US companies took full advantage of this. For companies that are prepared to take the risk and have the necessary funding in place, there could be significant benefits.
Our advice is to make sure you are ready to take advantage of market changes. Businesses need to work closely with trusted advisers to ensure that they are strategic in their thought process and not just be tempted by a ‘bargain’ – due diligence, as ever, is essential, as is rigorous planning and preparation.
Whilst the target location of M&A activity may be evolving and changing, for many, the reason for engaging in M&A remains the same. The IBR shows that either access to geographical markets (63%) or building scale (57%) remain the likeliest motivation to participate, indicating that M&A remains the simplest and most effective way for businesses to gain a footprint and build scale in new geographies.
Although the Eurozone is less optimistic about the growth prospects of their own economies a large proportion of businesses within Europe are actively seeking opportunities abroad and expanding into higher growth markets such as the BRIC economies.
Following the financial crisis of 2008, the flow of economic power from ‘west’ to ‘east’ has undoubtedly speeded up.
It is therefore encouraging that enterprising corporates in mature markets appreciate that M&A remains a vital strategic tool to enable them to benefit from these trends.
Naturally, domestic M&A remains high on the agendas of business leaders but the upswing in interest in overseas expansion is encouraging. We are also seeing increasing levels of inbound investment into the UK, which for many long distance acquirers is seen as a relatively safe route to access European markets.
The full IBR 2012 M&A report is available here: www.internationalbusinessreport.com/Reports/2012/
To find out more about trading overseas, consult Grant Thornton’s team of international business advisers.
