Insider secrets to successful cross-border M&A deals for Private Equity

Tanguy Lesselin, CEO, Finquest

We had a great panel discussion at SuperReturn Asia on cross-border M&A throughout Asia and beyond.

This is a great subject for Finquest, as our mission is to source new deals for Private Equity investors in 2 main cases. The first one is primary sourcing, when our client is “investment-thesis” driven, and basically knows exactly what to look for. The second one is “bolt-on” acquisitions, when a portfolio company is looking for acquisition targets to either gain market share in a country/ region, or expand its geographical coverage beyond its current footprint.

We have found that a significant majority of these deals turn out to be cross-border in the mid-market space (that we typically define as USD 10m-200m revenue range).

From right to left: Tanguy Lesselin (CEO, Finquest), Michael Wang (Managing Partner & President, Abax Global Capital), David Han (CEO & Co-Founder, Yao Capital), Greg McElheran (Head of Fund Investments, Export Development Canada) and moderator Jay Tai (Partner, Proskauer)
From right to left: Tanguy Lesselin (CEO, Finquest), Michael Wang (Managing Partner & President, Abax Global Capital), David Han (CEO & Co-Founder, Yao Capital), Greg McElheran (Head of Fund Investments, Export Development Canada) and moderator Jay Tai (Partner, Proskauer)


One thing that makes Asia a more difficult market on deal sourcing is the difficulty to identify the right targets because of the lack of financial data on private companies. The problem is exacerbated when looking at cross-border deals, as data coverage and quality tends to vary widely across countries.

Because of that and of other more “cultural” reasons, some PE funds tend to heavily rely on their own networks and “passive” sourcing from their trusted financial intermediaries and introducers. As such, we feel there is an opportunity to go beyond in creating investment-thesis driven strategies.

This is where Finquest comes into play, enabling private equity investors to compare their investment thesis with the reality of the market in terms of number and profile of matching companies.

Whether a deal comes out of this process is basically a numbers game (it is in fact no different from any sales process): how many companies fit with the investment thesis/ are in the target market, how many company CEOs are open to meet with investors and pursue discussions after entering into NDA, how many of these companies are compatible with a due diligence process, etc.

We have found some tricks to increase the probability to help our clients close a deal down the road. One interesting example: a mid-sized company that hires a new CEO has a lower probability of an exit, whereas the recruitment of a new CFO increases the probability of going for an exit by a factor of 7X.

Here are some other inputs we and other panelists shared during the discussion and the panel preparation:


-   There is a consensus that no one really knows what is going to happen on the China outbound investment front, beyond the fact that the level of activity right now is very low.

-   We see a strong level of activity from European, Japanese & Korean buyers seeking acquisition targets in China and other Asian economies, most probably driven by the slow growth of their own domestic markets.

-   At Finquest, we have seen a trend towards smaller cross-border deals. The minimum cross-border deal size obviously varies widely by country (the smaller the market, the smaller the targets…), but we have recently seen cross-border deals as low as USD5-10m.

-   Hot sectors still include Education, Healthcare and activities that support the growth in consumer spending from the ever-growing middle-class (e.g. consumer product packaging, e-commerce logistics…).

It was really interesting to get other panelists’ vision on their own positioning. Michael Wang (Abax Global Capital) focuses very much on the mid-sized company debt financing, as the large financial institutions underserve this segment of the market. David Han, from Yao Capital, focuses exclusively on sports related investment opportunities, working alongside former NBA star Yao Ming. Sports is an example of a segment where spending growth exceeds the average economy growth, and where cross-border opportunities and assets can be massively leveraged, in particular in China.

Looking forward to sharing more interesting findings next time.

Cheers,

Tanguy

Source : Article by Tanguy Lesselin

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