17 May 2016
Cross Border deals
In Q4 2015 Cross border activity rose by a substantial 61% by deal value for the same period last year to $597.4 billion with 1,224 deals, including a record $390.1 billion in cross-regional and $207.3 billion in intra-regional deals (Source Baker & Mckenzie). In early 2016, some political and economic uncertainties (ie: Brexit, emerging markets evolution, raw materials prices, etc) have reduced this booming activity. In the mid/long term we think the trend will come back to significant growth in Cross Border Deals.
The main reasons for companies of every size is to buy other companies abroad are:
-Quick external growth.
-Fortify balance sheets weakened for the crisis in their local markets.
-Avoid the trend of lower operating margins and, therefore, increase profitability.
Additionally, not only companies are promoting Cross Border Deals, Institutional Investors are also very active. The main change we have seen recently are the increasing interest of active investors in other markets apart from USA and UK, creating specific analysis teams for new geographical areas of their interest and therefore, demanding investment opportunities to analyse in them. We have seen the appearance of these new professionals in Spain with whom we have been able to work with.
Cross border deals have two ways to be done:
1 - Investment of companies and investors from certain market into foreign countries:
In Spain, for example, as a consequence of the recent deep crisis, we have seen negative or very weak growth rates in their home market and, additionally margins have dropped significantly. All of it has forced them to look abroad in an internationalization process that has come to stay in their strategy. We must not forget, traditionally, that one of the main characteristics of our companies, mainly SMES, is that they were traditionally focused only in the local market. This new foreign markets approach has been carried out both organically and inorganically through acquisitions in targeted countries.
2.- Foreign investors and companies into a market:
On the other hand, once some European economies such as the Spanish have recently shown a positive economical evolution and good perspectives for the following years, they have become of much interest for foreign companies and investors. This interest is too due to:
-the uncertainties that have arisen in the emerging markets (few years ago preferred investment destiny in the M&A activity)
-and the good valuation of assets after the crisis in Europe.
We think that In a globalized world were recent economic evolution has come out with the need for companies and investors to be international, Cross Border Deals will has to be done not only by large companies and investors but also by SMES, and not only in the traditional industries like Real Estate, Pharma, Finance, Chemical, oil and gas, etc but for almost every industry.
In Auren Corporate, we have experience in Cross Border Deals acting as advisor covering a wide range of different deals and circumstances. We have advised Spanish companies that have been sold to foreign groups, international companies interested in buying Spanish companies, international debt fund financing deals in Spain, PE funds investing in Spain and abroad, etc…
From our experience and point of view the value added provided by advisors in Cross Border Deals are key for the success of this activity, due to:
-the knowledge of international rules in this kind of deals
-the local knowledge of market not only tax, legal or labour regulation but local common practices and business manners
-support in negotiation processes and providing proximity to the parts establishing bridges between them
-Pushing investment processes that easily can be inefficient due to the geographical and/or time distance.
Corporate Finance at Auren