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Foreign Investors Increasingly Competing for U.S. Middle-Market M&A Deals

July 19, 2017, 08:00 AM
Filed Under: Mergers & Acquisitions

International buyers stepping up their competition against U.S. companies for M&A deals in the U.S. manufacturing sector, according to a recent report from Generational Equity. The report, "Manufacturing in Motion,” found that the North American manufacturing market has become a focal point for international M&A, particularly the middle-market.

Moving well beyond the “headline deals” involving large corporations, Asian and Western European buyers are increasingly bidding in the U.S. middle- and lower-middle-market for manufacturers.

"It used to be we would have to hunt for these overseas buyers, and now we're seeing many of them come to us," said Chris Heckert, Managing Director and Supervising Principal of Generational Capital Markets, Inc. (a GE affiliate company), Member FINRA/SIPC, speaking at an M&A Advisor roundtable called "Manufacturing in Motion."

This contrasts with five to ten years ago when large foreign investors were not interested in middle- or lower-middle-market companies. Heckert reports higher levels of activity even for lower middle-market companies of $2 million to $10 million in EBITDA.

Experts suggested that international buyers are focusing on the US market because of stability and growth. "Take a step back, and two percent annual growth is the weakest recovery we’ve had in seven decades. But relative to the rest of the world, it’s stable,” said Christopher S. Sheeren, a Partner at Huron Capital Partners.
Sheeren added that organic growth is increasingly difficult for many companies in the U.S. market. “I think that’s really driving a lot of the M&A activity—demanding growth and low interest rates, and there’s lots of cash on the balance sheets of a lot of corporate buyers. We have a consumer product business that we’ve been in the market with and talking primarily to strategics (strategic corporate investors), and there have been a couple of Spanish buyers in the mix that have moved I think faster than we anticipated they would. It’s a sample size of one, but it validates the thesis.”

The stability of the U.S. currency and increased manufacturing costs in formerly low-wage countries also makes investing in the U.S. more attractive, a trend expected to continue agreed the roundtable panel.

Heckert added that he is seeing smaller international buyers. "What used to be billion-dollar foreign entities, whether it's Asia-Pacific or Europe, are now becoming hundred-million-dollar companies, and they're looking to invest their money into the U.S., not just these massive corporate entities that you see in the news all the time. That's been a very interesting trend in the last few years, to see that new category of buyers come in and make sizable investments."

In one recent example, Generational Capital Markets recently arranged the sale of its client, CEC Controls Company Inc., to Wood Group. CEC Controls is based in Warren, Michigan, while the acquiring firm, Wood Group, is based in Aberdeen, Scotland. Through the acquisition, Wood Group's automation and control division will be able to expand into the Midwest U.S. and develop relationships with the American original equipment manufacturers.

"Overseas investors have significant funding and great faith in the U.S. economy and should not be overlooked," said Heckert. "Our global network of strategic buyers is a significant value add and one of the key benefits we bring to our clients."

Click here to read the report in its entirety.

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