Globalisation of M&A Activity

The global economy has changed dramatically over the past 10 years, particularly as the financial crisis slows down Western economies and emerging markets power on with double digit growth.  This dramatic realignment in economic power has had a significant impact on merger and acquisition (M&A) activity and presents significant opportunities both domestically and abroad.
 
In the UK, which is Europe’s most open economy, overseas buyers now dominate the market.  UK businesses present an ideal stepping-stone into the European Union; they are hungry for investment, offer strong technological advantages and respected brands – and a weakened pound offers the ability to transact at levels attractive to both buyer and seller.  Between 2010 and 2011, our dealmakers at Clearwater saw cross border deals, ranging from Europe and the United States to India, increase from 63 per cent to 80 per cent of trade sales – a startling statistic and indicative of the market changes.
 
For a UK business, which is operating in a recessionary environment and with restricted access to bank funding, the external investment is welcome.  It is important to remember that while our economy remains flat, there are many areas of the world in growth.  An overseas buyer will bring with them the opportunity to access the high growth international markets and therefore avoid having to rely on the sluggish domestic economy.
 
China – A Leading Driver of Cross-border M&A
 
Out of the BRIC nations, which are rapidly climbing up global GDP rankings, China presents the most obvious opportunity as the world’s second largest economy.  Boasting an economic growth rate of 9.2 per cent in 2011, Chinese businesses are expanding their reach across the globe and are keen to acquire quality assets.
 
A recent IMAP summit in Beijing highlighted the demand for access to the Chinese market, but also the need to facilitate investment from the Far East into the UK economy.  As a result, we have launched a dedicated China team to ensure that, as a firm, we can offer a personalised service to corporates, business owners and entrepreneurs moving investing in both directions. 
 
Chinese investors are also extremely keen on the European mid-market and many Chinese firms have huge trading surpluses that they want to invest overseas.  As a result, there is certainly a feeling that the M&A space between China and Europe will become a more active.
 
Consolidation Drivers
 
The key driver behind Chinese interest, and this is also the case for Indian corporates, is the desire to cash in on UK expertise and share of the supply chain. 

The expertise and contracts held by UK firms are much sought after.  The knowledge capital and connections can catalyse their business in their own domestic markets and provide a competitive edge.  However, it is the cost benefits provided by acquiring smaller firms in the supply chain, particularly in industries such as automotive and aerospace, that is driving the bulk of M&A activity.
 
The target firms are well-priced and, with less competition from European buyers, provide greater control on cost for corporates from the emerging markets.  India and China are gradually becoming more sophisticated when it comes to M&A and there is evidence to suggest the perfect storm is forming for them to significantly increase their investment in Europe and the UK.
 
Another important factor is the impending shift towards a ‘near shore/far shore’ model where Asian groups use their domestic assets for less urgent production schedules and those in the West, which typically have more expertise and experience, to adhere to strict customer supply chains.  We have had discussions with acquisitive investors from China who are targeting this area.  It is not a case of if they arrive in the West, but when they do.
 
M&A is a fantastic barometer of the economy, highlighting the sectors and geographic regions that represent the most potential for growth.  It is vital that businesses are receptive to the changing economic landscape and M&A transactions that are taking place, to ensure that they are ahead of the curve and do not miss the opportunities that a changing world will present.
 

Mike Reeves is joint managing partner at Clearwater Corporate Finance, which is the UK member firm of IMAP, the leading global M&A advisory firm. 
 
Mike, one of Clearwater’s founding partners, has been involved in mid-market corporate finance and restructuring work for over 25 years.  After leading the MBO of Clearwater, he has grown the business into one of the leading corporate finance boutiques in the UK.  Mike was recently appointed to IMAP’s board of directors as well as Chairman to IMAP’s International advisory board.
 
As part of the leading global M&A partnership IMAP, Clearwater is represented in more than 40 countries worldwide by more than 400 experienced transaction advisers.  Despite the recent challenges in the global economy, IMAP has continued to expand and is now ranked third globally for mid-market deal volumes up to $500 million, by Thomson Reuters.
 
Mike can be contacted on +44 (0)845 058 0342 or by email at michael.reeves@clearwatercf.com