Cross Border M&A Activity

Recent cross border M&A activity at Clearsight would lead one to believe that foreign buyers are aggressively moving in on US-based businesses and fueling the US deal machine.   Two of our recent clients, Stratigent and JackBe both inked very attractive deals with foreign companies that eagerly wanted into the US market and highly valued the offerings of their respective targets.  Are cross border deals at attractive valuations really on the rise?  The stats would lead you to believe otherwise.  Cross border deal activity has been down year over year from 2012.  In addition and perhaps more importantly, average cross border deal values have plunged 71% to its lowest level since Q1 2009, according to E&Y’s Global Technology Update (Jan – Mar).

We often hear companies talk about their dream buyer being the flush-with-cash Brazilian buyer who will pay a heaping multiple for their business.  Those buyers exist, but prepare to be patient.  Cross border deal processes tend to be longer than domestic deals.  Foreign buyers tend to be more risk averse and approach diligence with a special kind of rigor.  Certain deal terms and cultural differences can also add complexity to the process, particularly over indemnification.  In the case of JackBe, you can add government approvals and the likes of the Committee for Foreign Investment in the US to the timetable.  Inevitably deal teams, legal teams, etc will be spread across a couple continents and decisions may take longer than you think.  Be prepared to see “quickly” defined very differently in the US than outside the US.  That said, aggressive valuations from foreign buyers looking to enter the US market can be a fantastic opportunity for shareholders and management teams alike.  Tight management of the process and a competitive element  keep all sides on track and hopefully lead to that heaping multiple.