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acg inbound investment presentations

Tuesday 21 October, 2008

I attended this breakfast panel discussion organized by the Association for Corporate Growth on how inbound investment from outside of the United States into the US is affecting middle-market mergers & acquisitions deal flow.

Steve Brady of Grant Thornton revealed this distribution of inbound buyers:
40%-China
17%-UK
14%-India
10%-UAE
Cross-border accounts for 48% of world-wide M&A activity.  Europe still leads the # & value of transactions with 62% & 71%.  Inbound investment is still relatively small @ 8-10%.  95% of transactions are middle-market, with 83% <$100M.  While 50% transactions values are “undisclosed” in Europe & Asia, those that are are named <$100M are 32% & 35% respectively.  The most active industries are as follows:
Industrial      426  21%
IT                  396  23%
Consumer     346  17%
Health Care  209  11%
The biggest trend is the emergence of Asia buyers.  They are seeking to buy
customers or suppliers
new market opportunities
new product applications
new management talent
strategic footholds-(it’s tough to grow organically)
image/market perception-(raise share prices)

Thomas Williams of Lincoln International summed up his observations of acquirers from different countries:
Germany-active
UK-has a large private equity community affected by the credit crunch
France-fallen off more than 37%
Spain-seeking US beachheads
India-optimistic, very active
Japan-less active, starting to look outside (when correlating GDP & # of deals, Japan is underinvested)
He found 29% of cross-border transactions are strategic.  Globally m&a is down as the business is more cautious & looking for long term values.

Tariq Malhance, Pres. of UIB Capital-North America made this interesting presentation on investing in US companies while still adhering to the Shariah investment philosophy governed by Islamic law, i.e. common stock only, no leverage, dividends, & management fees  uib-capitalacgbreakfastpanelpresentation

Q&A brought out:

part of Japan’s reluctance is because they’ve made a lot of mistakes in the past

top notch legal assistance is necessary for foreigners to navigate the litigious US market

Russians & Brazilians are sitting on the sidelines, due to lack of confidence in the system

high net worth institutions are sources for sovereign wealth funds

debt sources for foreigners are usually from US mezannine players leveraging assets @ home

the level of sophistication of the players is the same wherever you go-most are western-educated & fluent in international business & western style transactions

changes in currency values, a long term view, focus on the fundamentals & productivity allow others to better compete with the Chinese

I requested the other presentations but have yet to receive them.

My take is:  it was good to bring up this topic.  I think it’s going to become more important at least over the short term while the $ is weak.  I’m surprised it hasn’t come up more often, but I think the Arabian acquisition of ports sparked a lot of anti-foreign acquisition sentiment, so many of these acquisitions are a lot more under the radar now.  Integration of US companies is just as difficult for foreigners as it is for us.  I wonder if foreign companies are able to a better job of due diligence so that they know what they’re getting into when they buy American companies.  We’d better get used to being owned by foreigners & giving up some of our sovereignty because I think it’s inevitable.

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