The Advantages of International Acquisitions

Daniel Saunders

Chief Executive Officer

As you may have read in the news, L Marks recently finalised an agreement to acquire the US innovation firm, The Inovo Group. The acquisition will support our North American growth and expand our innovation capabilities. 

Our cross-border acquisition contributes towards the record-topping number of deals in 2021 and early 2022. But why, given the state of the economy, are so many CEOs making international acquisitions? Below I delve into the factors driving international acquisitions and highlight some of the main advantages and opportunities open to those considering such deals. 

What’s driving international acquisitions? 

There are many interwoven factors driving the record-high numbers of international acquisitions seen in 2021 and early 2022. Below I’ve summarised the main contributing factors driving this trend. 

Digitalisation opening up foreign markets

Covid-19 lockdowns significantly reduced transaction activity in 2020. But with vaccine rollouts and travel restrictions loosened, CEOs gained the confidence to resume business discussions. This is partially the reason for the record number of deals, but there’s more to it. 

Covid drove people to spend most of their leisure and working hours online. Businesses, therefore, had to digitise operations rapidly. In many cases, these enhanced digital capabilities allowed businesses to open up to foreign markets alongside local markets without much extra resource. This prompted CEOs to look for international acquisition targets to support cross-border trade. 

Future-proofing operations 

Global supply networks are under a great deal of stress as a result of the pandemic and the conflict in Ukraine. As such, firms sought to regain control of their supply chains by acquiring factories in key overseas markets. 

Making the most of easier deal-making 

We’ve seen many restrictions on foreign investors coming into force as part of “trade protectionism” to safeguard domestic resources. In 2020, the UN estimated that more than fifty foreign direct investment measures were implemented. As a result, many leaders are eager to complete international transactions ahead of further trade restrictions.

Better deals 

Despite high levels of uncertainty in the market, driven by the lingering pandemic, the UK’s political chaos, geopolitical tensions, impending recessions, and the energy crisis, now is an excellent time to make acquisitions. Acquisition deals completed during economic downturns are often more successful than those completed in times of prosperity.

Advantages of international acquisitions 

Given that the current economy presents favourable conditions for acquisitions let’s explore some key benefits of pursuing international deals. 

Growth into new geographies

For European companies, the world’s largest economy, the US, is often the first choice for market expansion. Likewise, Europe is the default location for US companies intending to make international purchases thanks to its large market size and beneficial EU trade agreements. 

Every destination has specific advantages. For example, the UK is a highly connected financial hub, with “international fintech bridges” connecting the UK, Australia, China, Hong Kong, South Korea, and Singapore. These bilateral agreements aim to make growth easier. So, acquiring a UK Fintech business offers fast access to five APAC markets.

Gain cutting-edge technology

Why limit yourself only to technological advancements and innovations in your local market? Cross-border acquisitions open you up to the best ideas available worldwide. Such acquisitions allow you to offer new market-leading products and services or enhance existing ones. 

Recent examples include; 

• Microsoft’s purchase of Slovakia-based startup Minit to secure their process mining technology.
• Visa’s acquisition of UK-based fintech, Currencycloud, to enhance its existing cross-border payment technology.
• Amazon’s purchase of Umbra, a Finnish startup that develops “visibility solution technology” for video games.
• British AI-powered business intelligence, risk, and decision-making platform Signal AI acquiring US-based data analytics company KELP. 

Attain valuable knowledge

In addition to market access or cutting-edge technology, strategic cross-border acquisitions may also provide valuable knowledge you can apply to get ahead of competitors in your local market. 

Here’s a prime example. Deregulation in the US led to a new (legal) sports betting industry. This sparked a bidding war between US gambling companies hoping to acquire a UK sports betting business. The US companies expect many new regulations will come into force in this newly formed market. The new US sports betting rules will likely be modelled on the long-established regulations used in the UK. By acquiring a UK sports betting company, US companies can gain valuable knowledge about how to structure their operations and build digital services that are likely to comply with future regulations. 

The UK also has an exciting healthtech industry thanks to well-funded R&D initiatives, strict intellectual property regulations, and the “Golden Triangle”, home to five of the top life sciences universities in the world. This sector is another example where acquisitions can help businesses seeking regulatory expertise and technology. For example, the UK division of UnitedHealth, Optum UK, paid $1.5B to acquire UK healthtech EMIS. The purchase will enable Optum UK to better serve its customer, the NHS, by offering cutting-edge technology that complies with the highly regulated requirements in healthcare. 

Summary

The present economic conditions provide fantastic international acquisition opportunities for businesses looking to grow into new markets, enhance their product offering with innovations or gain invaluable knowledge to get ahead of the competition. 

International acquisitions should be a tool in every CEO’s toolbox to innovate and grow, and there has never been a better time to use it.

22/12/2022