ibr 2013 the rise of the cross-border transaction

The rise of the cross-bordertransactionGrant Thornton International Business Report 2013

2 The rise of the cross-border transaction

Foreword

MIKE HUGHESGLOBAL SERVICE LINE LEADER – MERGERS & ACQUISITIONSGRANT THORNTON INTERNATIONAL LTD

When reflecting on the results from this year’sInternational Business Report (IBR), one has totake into account the major political and economicevents that have dominated the global agenda overthe past twelve months.

With the on-going eurozone negotiations, theUS ‘fiscal cliff’, the continuing Arab Spring and the various domestic elections, including those inFrance, the US, India and Japan, it is understandablethat many business leaders surveyed remaincautious about their current and futurecommitment to M&A.

However, what is encouraging from this year’sresults is the increased appetite of companies forcross-border acquisitions, which is at its highestlevel since the IBR first asked this question in 2008.

This trend underlines that this domain,previously dominated by large corporates, isprogressively becoming a focus area for businesses of all sizes, whether they are acquiring or indeedlooking to source potential acquirers for their own business.

Accessing global customers, relationships andnew markets may well now be the most importantstrategic tool for companies seeking to grow,especially as many continue to experience eitherlimited growth domestically or are operating in ahighly competitive saturated domestic market.

As dynamic businesses look to M&A withintheir own borders or across the globe, GrantThornton’s M&A experts across the globalorganisation of more than 110 member firms havethe experience and expertise to assist businessowners and management teams in achieving theirstrategic goals.

FIGURE 1: MATURE MARKETS INCREASINGLY LOOKING OVERSEASPERCENTAGE OF BUSINESSES PLANNING A MERGER OR ACQUISITION OVER THE NEXT THREE YEARS

2013

2012

North America BRIC UK and Ireland Mainland Europe Rest of the world Global

DOMESTIC ACQUISITIONCROSS-BORDER ACQUISITION

SOURCE: GRANT THORNTON IBR 2013

The rise of the cross-border transaction 3

Cross-border deals set to riseWhilst domestic acquisitions remain the focus ofacquisitive growth for many businesses (84%), thedesire to make a cross-border acquisition isbecoming increasingly prominent. The globalexpectation that cross-border M&A will driveacquisitive growth has increased by 56% since 2008and 18% in the last year alone.

Whilst overall the survey results indicate thatsome businesses may be holding back oncommitting to acquisitions in the next three years,there is no doubt that many of those that will beconsidering an acquisition will be looking overseasto facilitate their growth.

2013 M&A report

91 90

758184 85

37 33 3544

35 33

88 87

718284 84

38 4033

4438 39

“The strong Yen led to unprecedented interestin cross-border deals for Japanese firms. Theimpact of the Yen devaluing may affect pricingbut not appetite, as domestic opportunitiesremain scarce.”

YOSHI KAWAMURAGRANT THORNTON JAPAN

Regional highlightsNorth AmericaNorth American interest in growing through a domesticacquisition remains healthy with 88% expecting a domesticdeal. However, what is fascinating is the escalation of theinterest in cross-border acquisitions. Over the past four years, both US (56% increase) and Canadian (67% increase)respondents have shown a considerable rise in the expectationthat cross-border acquisitions will underpin their acquisitivegrowth.

EuropeThere is less emphasis on the importance of domesticacquisitions to drive acquisitive growth amongst Europeanbusinesses (71%), as companies from this region continue toshow an increasing desire to drive growth through a cross-border acquisition (44%). Spain (61%) is the country wherebusinesses are most fervent about future cross-border M&Aactivity whilst, in contrast, German businesses have increasedtheir support for domestic acquisitions (11% year on yearincrease). UK and Irish companies remain focussed ondomestic acquisitive growth (84%) but with 33% effectingtheir M&A activity to be cross-border, UK and Irishcorporates remain keen global acquirers.

BRICBRIC countries (87%) continue to place significant importanceon making acquisitions within their own borders with China(90%) leading that trend. However, the BRIC region’s mid-market respondents are now showing a greater interest inoverseas acquisitive growth with an increase of 20% year on year.

The year on year increase in appetite for cross-borderacquisitions from countries such as Russia (increase of 117%)and China (81% increase), emphasises the development andgrowing financial strength of mid-market companies withinthese countries that now have the ability and interest insourcing growth internationally.

Asia PacificThe results from India (59% increase) illustrate that the recenteconomic slowdown and political and economic issues still tobe resolved appear to be impacting on where businesses seekacquisitions with a greater focus on overseas opportunities.

Japanese respondents’ 50% increase in interest in cross-border acquisitive growth coupled with their high expectationof acquisitive growth being made through domesticacquisitions (91%) only further indicates how importantacquisitions are to Japanese businesses seeking to grow.

Singapore (86%) and the UAE (66%) are two of the countries most interested in growing through cross-border acquisition. Australian respondents (94%; an increaseyear on year of 25%) show the most support for domestictargets as the focus of their acquisition strategy.


“The global expectation that cross-border M&A will drive acquisitivegrowth has increased by 56% since 2008 and 18% in the last year alone.”


M&A activityThe results of the survey show that 28% ofbusinesses across the globe expect to beparticipating in M&A activity in the next threeyears. Whilst a decrease in comparison to 2012,the results remain above those at the depths of theglobal down-turn in 2010.

It appears that with many key global andregional economic issues still to be resolved, there is a more subdued outlook for global M&Aactivity compared to the apparent optimism shownlast year.

Regional highlightsNorth AmericaBusinesses in Canada and the US continue to be as keen on M&A as they were last year with thisregion remaining the most supportive of M&Aactivity. 37% of respondents expect to growthrough acquisition in the next three years.

EuropeEuropean companies continue to be lessenthusiastic about M&A than their NorthAmerican counterparts, although there remains a strong expectation for M&A activity to facilitategrowth in the Netherlands (55%) and France(31%), whilst notably German, UK and Irishrespondents say they are less likely to undertake in M&A.

BRICThe BRIC region’s respondents have historicallybeen the most enthusiastic when forecasting futureM&A activity. However, over the past two years,that desire appears to have been stifled by globaleconomic events and their responses are now more aligned with the rest of the world (27%).

Rest of the worldFrom the developing and high growth markets, itis Latin American businesses that have the highestexpectations of their future growth being driven by M&A (31%).

Noticeably it is Australian respondents whoseopinions have been impacted the least by recentglobal events, with their survey results remainingrelatively consistent over the past three years(28%).

FIGURE 2: INTEREST IN M&A ACTIVITYPERCENTAGE OF BUSINESSES PLANNING TO GROW THROUGH ACQUISITIONOVER THE NEXT THREE YEARS

60

55

50

45

40

35

30

25

20

15

10

5

0

2008 2009 2010 2011 2012 2013


“Although not at pre-crisis level, privateGerman companies continue to generate adecent level of profits. With significant cashresources behind them we are optimistic for an increase in M&A activity in 2013.”

KAI BARTELSGRANT THORNTON GERMANY

North America

UK and Ireland

Global

BRIC

Mainland Europe

Rest of the world



42%South Africa

30%Canada

61%Peru

23%Argentina

61%Spain

39%United States

31%United

Kingdom

28%Brazil

39%Italy

51%Ireland

32%France

57%The

Netherlands

46%Germany

Respondents expecting theiracquisitive growth to be cross-border


86%Singapore

31%Australia

66%UAE

47%China

(mainland)

18%Japan

46%India

13%Russia

25%Sweden

PERCENTAGE OF RESPONDENTS EXPECTING THEIR ACQUISITIVEGROWTH TO BE CROSS-BORDER – GLOBAL AVERAGE:

39%

Financing growthWhilst M&A remains a key growth strategy, theability to finance such growth in the currentfinancing market is potentially impacting onrespondents’ views on the likelihood of transactingin the short term.

When asked how they expect to finance theirgrowth strategies, it is notable that bank financeslipped to 48% of respondents from 53% last year.On the contrary, the IPO funding option increasedby 40% year on year with Polish respondentsshowing the greatest appetite for raising moneythrough the public market (28%). As the privateequity (PE) market continues to expand globally, it is notable to see Brazilian business the mostexpectant to raise PE funds (47%) to fund theirgrowth, which is unsurprising considering theincreasing number of PE firms now present inSouth America.

Acquisition rationaleThe most likely reason for engaging in M&Aremains similar year to year. Accessing geographicalmarkets (65%) remains the main motivation toparticipate in M&A and this has increased inimportance this year. French respondents (77%)put the most emphasis on using M&A to accessnew markets. This further illustrates that for wellmanaged and funded businesses M&A remains thequickest and most effective way to gain a footprintand build scale in new geographies.


“With the Government now demonstrating policy initiatives andaddressing some of the foreign investment deterrents, there areexpectations of an increase in M&A activity in 2013, with privateequity exits and investments at the forefront.”

MUNESH KHANNAGRANT THORNTON INDIA

Exit perceptions Business owners are often reticent about disclosingtheir long term ownership plans. This year’s resultsillustrate this once more with globally only 8% ofbusinesses stating that they foresee an exit over thenext three years, the lowest level since 2008.

This decrease indicates a reaction to a turbulent 2012 and maybe a reflection of businessowner’s views that they may not be able to attractthe level of interest or price acceptable to them.

Regional highlightsEuropeOwners of UK and Irish businesses (12%) remainsome of the most open and upbeat about thepotential to sell their business.

Respondents from countries across mainlandEurope (8%) are generally less forthcoming orexpectant to sell their business in the next threeyears. However French business owners showedan increased interest and are 25% more likely tosell in the next three years compared to last year.Interestingly it is business owners in theNetherlands (14%) and Finland (26%) who areamongst the most positive regarding a future saleof their business.

Rest of the worldGlobally the trend is very similar with manyrespondents not showing an inclination to sell,though those from Brazil (19%) and South Africa(15%) expressed a far greater interest than therest of the world.

Exit routeSelling to a competitor is the most likely exit routefor businesses in the current climate. Whilst 44%of UK businesses expect to sell to a trade buyer,South African businesses (35%) see their mostlikely exit route being to management, 35% ofCanadian firms expect to hand over their businessto family and, to further underline the investmentmade by PE firms in South America, 40% ofBrazilian companies expect to exit via privateequity.


FIGURE 3: UK & IRELAND BUSINESSES MOST LIKELY TO SELLPERCENTAGE OF BUSINESSES FORESEEING A CHANGE OF OWNERSHIP IN THE BUSINESS OVER THE NEXTTHREE YEARS

North America 8

BRIC 7

UK and Ireland 12

Mainland Europe 8

Rest of the world 7

Global 8

DO YOU FORESEE A CHANGE IN OWNERSHIP IN THE NEXT 3 YEARS?

SOURCE: GRANT THORNTON IBR 201 3

“Cross-border M&A activity has become increasingly important to the US over the lastdecade. Historically the US has been a net acquirer, though this changed slightly in 2012 asa result of significant investment from Asia Pacific buyers. There has been a flurry of dealannouncements in recent weeks as credit markets have improved at a time when businessoptimism is increasing, which has been reflected by the level of the stock market.”

IAN COOKSONGRANT THORNTON US

SummaryWith a turbulent 2012 behind us in whichsignificant political and economic decisions weremade and with many key decisions and policies tobe set in 2013, not least in the US, Europe, Indiaand Japan, it is unsurprising that businesses arecautious.

However, across the world M&A remains a keystrategic tool to drive growth and build scale. Themarked increase in prominence and importance ofcross-border M&A to business owners illustratesthat accessing global markets and opportunities isnow more than ever a vital growth strategy.

At Grant Thornton, we have the globaladvisory capability, expertise and reach to provideinsightful global advice and support to domesticand international businesses seeking to expand theiroperations organically or through acquisition.



The Grant Thornton International Business Report (IBR) is a quarterly survey of 3,500 senior executives in listed andprivately-held businesses all over the world. Launched in 1992 in nine European countries the report now surveys 13,000businesses leaders in 44 economies on an annual basis providing insights on the economic and commercial issues affectingcompanies globally.

The data in this report are drawn from 12,156 interviews with business leaders conducted between January and December2012.

To find out more about IBR and to obtain copies of reports and summaries visit: www.internationalbusinessreport.com.

Participating economiesArgentinaArmeniaAustraliaBelgiumBotswanaBrazilCanadaChileChina (mainland)DenmarkEstoniaFinlandFranceGeorgiaGermanyGreeceHong KongIndiaIrelandItalyJapanLatvia

LithuaniaMalaysiaMexicoNetherlandsNew ZealandNorwayPeruPhilippinesPolandRussiaSingaporeSouth AfricaSpainSwedenSwitzerlandTaiwanThailandTurkeyUnited Arab EmiratesUnited KingdomUnited StatesVietnam

IBR contactsNigel Le Bas Dominic KingAssociate director, Advisory services Global researchT +44 (0)23 8038 1172 T +44 (0)207 391 9537E [email protected] E [email protected]

www.gti.orgwww.internationalbusinessreport.com

© 2013 Grant Thornton International Ltd. All rights reserved.References to “Grant Thornton” are to the brand under which the GrantThornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firmsare not a worldwide partnership. Services are delivered independently bymember firms, which are not responsible for the services or activities of oneanother. Grant Thornton International does not provide services to clients.

ibr 2013 the rise of the cross-border transaction

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