The middle market goes global Featured

6:43am EDT April 29, 2004
While the concepts of cross-border M&A, foreign sourcing and offshore production are certainly not new to U.S. business owners, their importance and viability have been magnified in recent years as attractive domestic exit opportunities have thinned and cost pressures have risen.

For owners of middle-market businesses, those with enterprise values ranging from $25 million to $500 million, a global outlook has become vital to a successful business strategy. The message is clear -- think globally, because your competitors are.

Offshore production, in the least, provides viable cost savings, significant capacity and growth potential, and a whole new world of opportunity. Domestic business owners wisely contemplate the classic "make vs. buy" debate, but now do so with eyes turned abroad -- to Europe, India and China, notably, and even as far afield as the EU candidate countries, Hungary, Poland, Slovenia and the Czech Republic among them.

While the U.S. dollar has made foreign acquisitions into Europe expensive, now is the time to consider good foreign targets and develop intelligent acquisition strategies. Moreover, for sellers of middle-market businesses or divisions, a global auction may yield valuations unattainable domestically. Given exchange rates, foreign bidders have been increasingly aggressive in their pursuit of U.S. businesses.

Cross-border M&A activity continues to increase, rebounding from a downturn that plagued all transaction markets. The total dollar value of disclosed middle-market transatlantic acquisitions in February was $2.9 billion, an increase of 44.4 percent from the prior February. Year-to-date, the total dollar value of middle-market transatlantic transactions is $5.5 billion, an increase of 19.1 percent over last year.

February also witnessed a rise in middle-market multiples, as median purchase price EV/EBITDA multiples for European acquisition of U.S. targets spiked to 10.7x from 5.9x in the prior February.

Optimism for global strategies is not confined to theory and statistics. Anecdotally, Brown Gibbons Lang & Co. has participated in several successful cross-border sales in recent quarters, with several more in the pipeline. In each case, global bidders have pushed valuations upward, exceeding the likely value attained in a domestic auction. Moreover, domestic sales of companies with global sourcing strategies have received premiums in the marketplace, as acquirers clearly recognize and reward this competitive advantage.

Just as U.S.-based businesses are thinking globally, so are the professional service providers -- lawyers, consultants, lenders and investment bankers -- advising them.

Brown Gibbons Lang & Co., for example, has formed Global M&A, an active network of 20 middle-market investment banking boutiques representing 23 countries in Europe, the Americas, Asia and Australia, with plans to grow by 12 more nations in the next two years. The firm's Global M&A affiliation gives its clients both broad reach and local expertise, invaluable when identifying attractive acquisition targets, selling to premium-bidders or helping navigate or finance a transaction in a foreign jurisdiction.

Law firms and financial institutions are rapidly mobilizing to create global capabilities, merging with firms abroad or building partner-networks akin to Global M&A.

Whatever your business' strategies, now is the time to think globally. Soon, we will conduct business and complete transactions in one, global middle market.

Editor's note: Brown Gibbons Lang & Co. will host the 1st Annual Global M&A Cross Border Conference in Chicago May 26-27. Entitled "The Middle Market Goes Global," it is an unprecedented forum for global deal-making and idea-sharing for principals involved in closing middle market deals throughout the world. For more information visit www.bglco.com/GlobalMAConference.asp.

David Sulaski (dsulaski@bglco.com) is the leader of Brown Gibbons Lang & Co.'s Private Equity group and a U.S. and cross-border new business development specialist. Reach him at (312) 658-1600.