A common question from our clients looking to sell or raise capital is whether foreign investors should be considered. When the answer is yes, the obvious follow up question is how can we get access to those investors?
Since the beginning of 2018, 908 transactions have been completed in Australia over USD 5m. Of these, 58.3% involved an Australian buyer, and 41.7% an international counterparty. This can be further broken down as investors in the Americas (15.6%), Asia (12.7%) and Europe (12.6%), with the balance from Africa and the Middle East1.
The reasons for approaching foreign investors include:
- Price. Cross border transactions often attract premium pricing, as investors pay a strategic premium to enter new markets, listed companies take advantage of pricing discrepancies (where trading multiples are higher in their country, enabling EPS accretion), or where certain industries are better understood (eg. Silicon Valley companies investing in technology businesses that aren’t well understood in their local market);
- Experience. Where companies are looking for an investor rather than an exit, foreign investors can offer access to existing distribution channels, experience expanding in new regions and navigating different legal and regulatory systems, as well as capital;
- Numbers. Looking globally increases the number of potential investors, improving the chances of finding a good fit and helping to create competitive tension.
Of course, not all companies are suitable for cross-border transactions. Companies that are too small, in industries that don’t align with other countries, or where there is limited strategic benefit from expanding cross-border, are more likely to find a home locally.
Turning then to accessing foreign investors, this is clearly a crucial piece of the puzzle. While it’s easy enough to find a name on LinkedIn or a switchboard number on the website, there is no substitute for getting a warm introduction to the right person.
InterFinancial is the Australian partner of Clairfield International. Clairfield is a partnership of 35 independent offices across the world specialising in mergers and acquisitions (over 650 transactions completed in the last 5 years). Offices are located in Europe, Asia and both North and South America. Of those deals marketed internationally though Clairfield, approximately 80% of transactions were completed with an international counterparty.
As an example of the power of this partnership, last week we were looking for a contact for a Swedish investor. We called our partner in the Netherlands and found the target is located just two offices away on the same floor and has regular lunch dates with our partner. This allowed us to get a timely, detailed, and highly confidential response from the decision maker, something that simply wouldn’t be possible with a “cold call”.
Local knowledge is also invaluable once the transaction is in motion. Having someone on the ground who understands the local legal system, regulatory environment, customs, who speaks the same language, and who often has an existing relationship with the investor, helps to remove potential barriers to a transaction and improves the chance of success for all parties.
In all, cross border transactions can be glamorous and lucrative for business owners, but access to investors and local knowledge is key. For more information on Clairfield International, see http://www.clairfield.com/en/.
- Mergermarkets.
Authors: Michael Kakanis & Mark Steinhardt
