Could international growth through acquisition be right for you?
If you’re a business owner thinking about expanding, one way to do this is to look overseas instead of close to home. Making an international acquisition can be an effective way to grow instead of natural growth, helping to improve value for any shareholders and speed up your objectives.
There are a number of considerations to take into account before you start though, and it’s important you know exactly what you’re doing. To help you map your journey through the process, we asked David Hawley (DH) and Daniel Brecker (DB) of Grant Thornton – one of our Gold Partners – to give us a few pointers.
Why can it make sense to acquire an overseas business?
DH: ‘It can make sense for lots of reasons. You can get access to markets, products and skills you might not have access to in the UK, so you have an instant way in. There will also be international companies that will give you opportunities for cost and revenue synergies and integration to help make you even stronger and better at what you do, so you can stand out from your UK competitors.’
DB: ‘You might also be at a stage where growing any more in the UK could mean you’ll be subject to domestic competition laws or have restrictions placed on your business. Expanding overseas is one way to continue growing without that happening.
‘Equally, some businesses are finding it difficult to grow organically right now, as they’ve taken a hit with Brexit and COVID-19. In some cases like this, making an international acquisition is a good way to get things moving again, even in such turbulent times. There may also be companies in financial distress that would benefit from a new owner.’
What’s the best way to fund an international acquisition?
DB: ‘Your funding options are the same as if you were buying a business at home. You can take the traditional borrowing route, look for private equity or use any cash reserves you might have. Do your homework before you start, so you can understand which one’s the best for you. Make sure anyone you borrow from or invests with you is happy to provide the follow-on capital to support you with international acquisitions.’
What should you be wary of when buying an overseas business?
DB: ‘One of the big things is to do due diligence on what you’re acquiring. Is it a company, a person or just an office? Will you be purchasing any freehold property? Is any intellectual property included? Having the right indemnity and warranty cover is very important too, so talk to a legal and financial professional who knows what they’re doing in this area.’
What about tax implications?
DH: ‘Yes there are several potential tax implications, so you need to be aware of what these are before you buy. It’s worth getting local tax advice as some countries have taxes and laws you might not know about. Other factors, like withholding tax, corporation tax and restrictive currencies in certain places can make things difficult too, so it’s advisable to get as much support and advice as you can.
‘Also, if you’re planning to send employees to work overseas to your new foreign office, this could affect their tax position, as well as your company’s.’
Finally, what’s the one piece of advice you’d give anyone thinking about taking this step?
DB: ‘I’d say do your research about the target company and know exactly what your acquisition criteria is, including what kind of products and services you want to acquire and how much you can afford to pay. That’s probably the most important thing to do. And talk to experts who’ve done it before. This includes when you’re looking at funding – ask to see case studies or evidence of something similar from them.’
DH: ‘I’d agree and add that you should look at where you can create the most shareholder value most easily. This could be by buying a business with a value that would be less than if it was combined with your business. Simply put, if you can buy something at a discount now and sell it at a premium as a combined business in the future, you can generate significant shareholder value through acquisition.