The globalization of business over the past decade has spawned a search for competitive advantage that is worldwide in scale. Companies have followed their customers who are going global themselves as they respond to the pressures of obtaining scale in a rapidly consolidating global economy. Cross-border acquisitions are usually driven by true international growth strategies, which are becoming a necessity now.
When I discuss M&A and exit strategies with CEOs, it is interesting to see how many often believe they know who their future acquirer will be. And if they are not certain as to who will eventually acquire their firm, they seem to be very certain as to where their acquirer will be located, even with the globalization trends. For example, most CEOs of U.S.-based companies believe their acquirer will be an American company. Similarly, German executives believe a German company will acquire their firm, and their contemporaries in the UK and in France also believe their acquirer is more likely to be domestic. The more developed a countrys own economy, the more often the executives tend to think in this direction. I always urge my clients to stay open to all possibilities and to think globally when considering their exit and partnering options.
As software and IT companies compete in the global market, any serious effort to find a suitable partner must include careful consideration of foreign companies. Business leaders with an eye towards international growth know how difficult it is to build a customer base and distribution channel in a foreign country and are willing to pay a premium for accelerating their international expansion.
According to an analysis report I saw by Mergerstat, the number of non-U.S. deals in first quarter of 2005 exceeded the number of U.S. deals by more than 50 percent. That is a significant change from as recently as 2002 where the number of deals was similar. The globalization of consolidation is reflected in our own transaction experience of which one-third are now cross-border. Although the international nature of consolidation translates to greater deal complexity and the need for a more comprehensive and global M&A process, the increased number of targets and interested parties can be leveraged in negotiations for a higher valuation even when the acquirer ends up being domestic.
A version of this article originally appeared in Soft•letter and Software Success.
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The globalization of business over the past decade has spawned a search for competitive advantage that is worldwide in scale. Companies have followed their customers who are going global themselves as they respond to the pressures of obtaining scale in a rapidly consolidating global economy. Cross-border acquisitions are usually driven by true international growth strategies, which are becoming a necessity now.