Rising Foreign Investment in UK SMEs
Overseas investors and companies are showing a strong interest in the UK economy and its businesses. This year the UK’s market share of foreign direct investment (FDI) projects rose to one-fifth of all European projects last year, close to its highest lever over the past decade. We have also seen record M&A levels, with the UK showing a strong rebound in overall deal activity, fuelled by overseas buyers. So strong is foreign buyer’s appetite for UK companies that they are not just targeting large corporates but are also focusing their attention on growth companies.
Below Howard Leigh, Senior Partner at Cavendish Corporate Finance, which specialises in advising growth companies on sale, shares his top tips on how your company can best position itself to take advantage of these favourable conditions and attract overseas buyers.
Early and Thorough Exit Preparation
Prepare thoroughly and early
Howard Leigh
Give yourself plenty of time to prepare for the sale – at least 18 months is desirable – and carry out a rigorous independent assessment of your company. It can be all too easy to let an emotional attachment to your business cloud the hard facts, but it is essential to look through the eyes of a prospective buyer: which areas of the business are underperforming, and what tough decisions could be made now to avoid damage to your business valuation?
Early corrective action can boost your exit multiples, especially when reaching out to buyers overseas. An external review will also help you identify intangible areas of your business which might not show up in your accounts but could be valuable to prospective buyers.
Understanding International Buyer Trends
Research the buyer’s market
AnalyseM&A trends in your sector to focus your search. Figures show, for example, that US buyers were responsible for about half of all foreign acquisitions of UK companies this year. UK technology assets and growth companies in the TMT sector are particularly in demand from cash-rich US tech giants. But it is also essential not to restrict your options. For instance, note that whilethis year has seen fewer sales to buyers from Western Europe, the total value of these deals has almost doubled compared to 2013. Recognise that overseas buyers come in many different sizes, all the way from the biggest players to mid-market businesses looking to expand through acquisitions.
Highlighting Your UK Market Advantages
Know your domestic strengths
Many overseas buyers look to acquire UK companies as a first step into the UK market. In the current climate, the UK is seen as a particularly attractive FDI destination because of its G7-leading growth rate andperceived ease of doing business compared to other European countries. Therefore, buyers are often prepared to pay a premium price – the value of overseas acquisitions of UK businesses has more than doubled this year, even after a slight fall in the number of deals.Take advantage of these conditions by understanding what buyers value about your company and play to your strengths. In particular, build on your domestic brand and strengthen your presence in the UK. While it can be tempting to focus on expanding your business’s reach as wide as possible into international markets to make your company more attractive, it is often your domestic market share and reputation that overseas buyers mostvalue.
Managing Cross-Cultural Deal Challenges
Be aware of ‘cultural clash’
Business norms vary widely from country to country – an overseas buyer’s M&A timetable and processes may be very different from what you are used to. Being aware of the differences can help prevent misunderstandings and speed up the overall sales process. Once you have found your probable buyer, adapt your business plan to the expectationsin their country. It can often be beneficial to propose a transition period to the buyer in which both sides work together to acclimatise employees and shareholders to the new ownership structure.
Meet your targets
Though the sales process can seem all-consuming,you cannot afford to neglect your current business operations. Overseas buyers tend to be less forgivingabout factors such as a downturn in domestic market conditions, so a dip in operational output or revenues can be very damaging to a potential sale. If you need to, adjust your business plan to take your potential exit into consideration – it typically looks better to have achievable targets and meet them than to be overly ambitious and fall short.
Seeking Expert Advice for Overseas Sales
And finally… Get advice
Your own desk research can only achieve so much when navigating unfamiliar terrain, especially in less developed markets which often lack transparency. Appointing an adviser with international reach is crucial to ensuring you get access to a full range of potential buyers, and ultimately will help boost value on exit.
