ibr 2012 m&a report

Cross-border mergers andacquisitions: building momentum

GRANT THORNTON INTERNATIONAL BUSINESS REPORT 2012

2 Cross-border M&A: building momentum

Foreword

MIKE HUGHESGLOBAL SERVICE LINE LEADER – MERGERS & ACQUISITIONSGRANT THORNTON INTERNATIONAL

Despite the on-going global economic challenges, thelatest results of the Grant Thornton InternationalBusiness Report (IBR) indicate that dynamicbusinesses have retained last year’s renewed appetitefor mergers and acquisitions (M&A) activity.

The market revival in M&A interest, thatemerged in last year’s survey, is still in evidence and isan indication that many corporates, who havesuccessfully plotted their way through the globaldownturn, are now seeking to invest the cashresources built up over a period of limited M&Aactivity.

Domestic M&A remains notably high onbusiness owners’ agendas, as this report illustrates.There are also some interesting trends regarding theirinterest in overseas expansion which no doubtreflects the particular market conditions withinindividual regions globally.

With recent positive economic data from the USand impressive growth continuing to be experiencedin the BRIC countries, the global economy isundoubtedly entering a new phase. To takeadvantage of this, enterprising corporates appreciatethat M&A remains a vital strategic tool to enablethem to benefit from these trends.

As dynamic businesses look to M&A withintheir own borders or across the globe, GrantThornton’s M&A teams across our globalorganisation of more than 100 member firms havethe experience and expertise to help business ownersand management teams achieve their strategic goals.

Cross-border M&A: building momentum 3

Despite the traumatic economic events in thesecond half of 2011 and the on-going challengeswithin the banking sector and the eurozone, theresults of the 2012 Grant Thornton InternationalBusiness Report, which surveyed 12,000 businessesin 40 economies, show that businesses across theglobe (34%) remain significantly more interested inacquisitions than they were in 2010 (26%),reflecting the upward trend seen in 2011.

Whilst the anticipated activity does not scale theheights seen in 2007/8, businesses appear to haveretained the increased confidence that was evidentlast year. Furthermore, there are some interestingresults that can be extracted from the data, on anindividual country basis, including:

• United States (37%) and Canadian (42%)businesses continue to be at or near the top ofthese results, a trend that has been evident for anumber of years

• mainland Europe appears to be cautiouslyreturning to the M&A market, with the keyeurozone countries of France (34%) andGermany (18%) both showing an increasedexpectation of M&A activity compared to 2011

• the UK and Irish market appetite for M&Aremains at a high level, with 36% ofrespondents planning an acquisition

• the BRIC economies have provided the mostvolatile results over the past five years, perhapsnot surprisingly as M&A markets continue todevelop. The 2012 survey suggests that overall theBRIC economies are now aligned with the restof the world in terms of their current appetitefor acquisitive growth. How these results evolvein the coming years will be of much interest tobusinesses and advisers involved in M&A globally.

Appetite for M&A remains strong

FIGURE 1: 2011’S RENEWED INTEREST IN M&A RETAINEDPERCENTAGE OF BUSINESSES PLANNING TO GROW THROUGH ACQUISITION OVER THE NEXT THREEYEARS

60

55

50

45

40

35

30

25

20

15

10

5

02008 2009 2010 2011 2012

North America 48 44 32 41 37 BRIC 59 41 27 44 35 UK and Ireland 40 39 27 36 36 Mainland Europe 30 36 25 28 28 Rest of the world 28 22 20 23 23 Global 44 37 26 34 34

SOURCE: GRANT THORNTON IBR 2012

“The US economy continues to improve and mid-market corporateshave growth ambitions high on theiragenda. However, uncertainties aboundwith an upcoming election and changesto the tax code.”

STEPHEN MCGEEGRANT THORNTON US


“Acquisitive growth is very much on the agenda for Indianbusiness leaders as they continueto focus on driving value.”

MUNESH KHANNAGRANT THORNTON INDIA

FIGURE 2: CANADA AND BRAZIL EXPECTING TO BE MOST ACTIVEPERCENTAGE OF BUSINESSES PLANNING A MERGER OR ACQUISITION OVER NEXT THREE YEARS


40%Brazil

42%Canada

34%France

18%Germany

35%Russia

32%United Kingdom

32%South Africa

37%United States

26%Sweden

37%India

31%Argentina

“M&A activity is being driven by growth hungry companies in a tepideconomic environment, the ageingpopulation of the Western world andstrong access to funding. In general, mid-market corporates that haveemerged from the last few years relativelyunscathed are commanding significantpremiums as competition for goodbusinesses increases.”

GREG WRIGHTGRANT THORNTON CANADA

Acquisition rationaleWhilst the target location of M&A activity may be evolvingand changing, for many, the reason for engaging in M&Aremains the same. Either access to geographical markets (63%)or building scale (57%) remain the likeliest motivation toparticipate, indicating that M&A remains the simplest andmost effective way for businesses to gain a footprint and build scale in new geographies.


PERCENTAGE OF BUSINESSES GLOBALLY PLANNING TO GROWTHROUGH M&A:

34%

29%Australia

33%China (Mainland)

12%Japan


• globally, North America (91%) and, perhapssurprisingly, the BRIC countries (90%)continue to place the most importance onmaking acquisitions within their own borders,though the results illustrate that Japan’sbusinesses have the greatest appetite (94%) fordomestic acquisition.

• businesses in Europe place proportionally more emphasis on expanding overseas (44%)compared to wanting to acquire within theirown country (75%). This may reflect arelatively mature and sophisticated M&Amarket as well as the lack of economic growthwithin that region when compared to thegrowth and opportunities available in emergingmarkets.

• within the BRIC economies, there appear to betwo distinct themes. Whilst all see value fromdomestic acquisitions, indicating an increasinglyvibrant and exciting local M&A market, onlyIndia (29%) and China (26%) show realenthusiasm to expand overseas. Clearly, atpresent businesses in these economies are morefocused on expanding domestically, a situationwe expect to change in the near future as Braziland Russia continue to develop internationallinks.

Domestic vs Cross-border expansionThe headline of continued interest in M&Aindicates that many businesses have growththrough M&A well and truly on their agenda. Ofadditional interest are the geographies in which thisM&A activity will be taking place in the comingyears.

For obvious reasons, such as knowledge of thelocal market forces and drivers, a domesticacquisition remains the most likely option for manycompanies. 85% of acquisition minded businessesstated that they expect their acquisitions to bedomestic compared to 33% who are looking atcross-border transactions.

FIGURE 3: MATURE MARKETS INCREASINGLY LOOKING OVERSEASPERCENTAGE OF BUSINESSES PLANNING A MERGER OR ACQUISITION OVER NEXT THREE YEARS

North America BRIC UK and Ireland Mainland Europe Rest of the world Global

DOMESTIC ACQUISITIONCROSS-BORDER ACQUISITION


91 90

758184 85

37 33 3544

35 33

“Mid-market German businesseshave traditionally been cautiouson acquisitions. Now even thesecompanies are increasinglylooking with interest at mainland European acquisitionopportunities.”

KAI BARTELSGRANT THORNTON GERMANY


• despite challenges in funding markets acrossthe world, financial investors are still seen as themost credible buyer (29%) for businesses.Historically, trade buyers (now at 26%) havebeen viewed as the most likely purchaser butwith institutional investors, such as private equityand sovereign wealth funds, with sizable funds toinvest, financial buyers look set to remain adominant player in M&A markets globally.

SummaryOverall the data is thought-provoking in thecontext of the global macroeconomic backgroundand the impact this is having on different regions.

Across the world M&A remains high on theagenda for companies in all territories and it remainsa key strategic tool to drive growth and build scale.Certainly, in the eyes of businesses, it remains themost effective way to enter a new territory.

Grant Thornton’s member firms remain focusedon helping businesses unlock their individualgrowth strategies and to provide insightful andglobal advice to those companies seeking to expandtheir global operations.

Exit horizons Whilst respondents are generally bullish aboutM&A activity, business owners are often morecircumspect about openly stating that they may beseeking to sell their business in the near future. Thesurvey’s results illustrate this with, globally, only10% (2011: 11%) of businesses stating that theyforesee an exit over the next three years.

Whilst globally the data is broadly unchanged,regionally there are some interesting trends to note:

• UK businesses (17%) remain upbeat about sellingtheir business within the next three years andclaim to be almost twice as likely to seek a buyerthan their mainland European counterparts (8%).Whilst this may be a surprising outcome given themacro economic issues facing the UK, the resultmay be influenced by a wider appreciation ofexit options amongst UK businesses and theeffects of a highly mature private equity market,which has made substantial investments into UK businesses over recent years.

• many other regions remain discreet about statingwhether they expect to exit in the future.Interestingly, Latin America (24%) is the regionshowing most interest, with a significant number of Brazil’s business owners (40% upfrom 22%) stating that they are looking to exitwithin the next three years. This may reflect thegeneral feeling of confidence within that region.Business owners appear to be riding this wave ofoptimism and hence expect to realise value fromthe forecast growth in the coming years.

FIGURE 4: UK & IRELAND BUSINESSES MOST LIKELY TO SELLPERCENTAGE OF BUSINESSES FORESEEING A CHANGE OF OWNERSHIP IN THE BUSINESS OVER NEXT THREE YEARS

North America BRIC UK and Ireland Mainland Europe Rest of the world Global

DO YOU FORESEE A CHANGE IN OWNERSHIP IN THE NEXT 3 YEARS?


10

12

9 9

15

10

“Private equity buy and build activity and well-funded corporates continue to stimulatethe acquisition market.”

GEOFF DAVIESGRANT THORNTON UK

www.gti.orgwww.internationalbusinessreport.com

© 2012 Grant Thornton International Ltd. All rights reserved.References to “Grant Thornton” are to the brand under which the GrantThornton member firms operate and refer to one or more member firms, as the context requires. Grant Thornton International and the member firmsare not a worldwide partnership. Services are delivered independently bymember firms, which are not responsible for the services or activities of oneanother. Grant Thornton International does not provide services to clients.

The Grant Thornton International Business Report (IBR) is a quarterly survey of 3,000 senior executives in listed andprivately-held businesses all over the world. Launched in 1992 in nine European countries the report now surveys 12,000businesses leaders in 40 economies on an annual basis providing insights on the economic and commercial issues affectingcompanies globally.

The data in this report are drawn from 12,000 interviews with business leaders conducted between January and December2011.

To find out more about IBR and to obtain copies of reports and summaries visit: www.internationalbusinessreport.com.

IBR contactsNigel Le Bas Dominic KingAssociate director, Advisory services Global researchT +44 (0)23 8038 1172 T +44 (0)207 391 9537E [email protected] E [email protected]

Participating economiesArgentinaArmeniaAustraliaBelgiumBotswanaBrazilCanadaChileMainland ChinaDenmarkFinlandFranceGeorgiaGermanyGreeceHong KongIndiaIrelandItalyJapan

MalaysiaMexicoNetherlandsNew ZealandPeruPhilippinesPolandRussiaSingaporeSouth AfricaSpainSwedenSwitzerlandTaiwanThailandTurkeyUnited Arab EmiratesUnited KingdomUnited StatesVietnam