Overseas investors prove tough competition

Buyers from overseas are flocking to the UK to snap up businesses, while the domestic M&A market remains subdued.

Several factors, such as falling prices and lenient foreign investment policies, are attracting the interest of these foreign entrepreneurs and acquisitive businesses. Indeed, they are ready to snap up a bargain from right under the noses of UK buyers, who remain cautious in light of the ongoing domestic economic slump.

Recent figures show that the trends for who is buying and selling businesses are changing drastically, with 75 per cent of UK company takeovers now being completed by foreign buyers. Just ten years ago, the majority of UK takeovers were completed domestically.

The European financial crisis, which is causing uncertainty and a lack of confidence among UK companies, has in turn led to lower business valuations throughout Europe. The UK is also especially attractive as it has no rules against foreign investment, encouraging Asian buyers who may otherwise have looked for businesses to buy in Australia, Canada or the US.

In terms of the size of businesses people are buying, mid-market acquisitions seem to be attracting the most attention from foreign buyers. Figures from Cavendish Corporate Finance show that there has been a 86 per cent rise in overseas acquisitions of UK companies with sale values of less than £50 million a year. Businesses of this size are increasingly aware that they have a truly global audience when they come to sell. The likelihood of smaller firms, with sales of less than £5 million a year, attracting buyers from abroad, however, remains significantly lower.

For those interested in attracting offers from abroad, there are several tactics that could help them to get noticed. Starting joint ventures with foreign businesses or undertaking PR activities abroad can help. Most importantly, however, could be ensuring they are compliant with international regulations.

Entrepreneurs based in the UK can take some solace in the fact that sellers don't always want an international buyer. In fact, cultural differences can cause more problems than they're worth for uninitiated entrepreneurs selling their first business to overseas buyers. Cross border deals tend to take much longer to complete, which could counteract any increase in price paid for a business. 

Buyers from overseas, and from Asia particularly, often want owner-managers to stick around and continue to overseas operations for as long as five years. This can mean overseas deals are unsuitable for owners selling due to retirement, who would much rather sell to a domestic buyer who may be happier for the vendor to disappear to the country after a shorter handover period.

Any seller needs to carefully weigh up the pros and cons to selling to overseas buyers as their individual situations will dictate whether this is a good option for them. Cautious UK buyers, on the other hand, need to realise that they are up against some serious competition from overseas entrepreneurs who have cash in their pockets and who aren’t afraid to spend it.

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