Stefano is Founder of MergersCorp M&A International, Investment Banker and M&A Advisor with 15+ years international experience.
In the last few years, the number of mergers and acquisition transactions involving U.S. firms has increased considerably. This can be attributed to many factors, perhaps primary among them the desire for investors to spread their risk exposure by investing in both the U.S. and European markets.
The momentum is expected to continue into 2023. While there have always been hundreds of M&A transactions involving U.S. firms in Europe, the number has recently been on a steady increase. As a disclosure, my company MergersCorp M&A International is one provider of cross border merger and acquisition management solutions.
In this article, I will outline six strategic takeaways for leaders seeking to leverage the positive momentum to make deals in Europe.
1. Monitor closely while the dollar vs. euro balancing act holds strong.
For the first time since 2002, the dollar and the euro have been at par, meaning one dollar could be exchanged directly for one Euro. The euro has always been stronger than the dollar, which means that American investors have always been required to spend more than one dollar to secure a single euro. Now that the euro and the dollar are trading at parity, or thereabouts, European M&A transactions have become cheaper for Americans.
American investors are best primed acquire European companies and assets when the dollar is strong and sell when the strength of the euro is restored. By the same token, investors who merge or acquire European companies can also leverage cross border investments in order to gain a strong return on investment.
The increasing strength of the dollar is one of the main reasons for the uptick in investors interested in the European M&A market. Whatever happens, many investors with deep pockets are hoping to set themselves up for potentially big profits by investing in the euro before the exchange rate stabilizes.
2. Leverage the ways in which European infrastructure can present a safe haven.
Most U.S. leaders seem to prefer infrastructure companies. This is because infrastructure is viewed by many as a safe haven. Because revenues from these assets are tied to inflation, when inflation rises, investors are also allowed to adjust their fees.
As a result, investors can feel better assured of receiving hedged yields from infrastructure assets. Since the euro may regain its strength against the U.S. dollar in the future, investors can build up cash reserves in Europe in Euros and repatriate the funds when the euro is stronger than the dollar.
Infrastructure assets include data storage, communications, distribution, water supply, transportation and energy, among others. Infrastructure assets that offer essential services, such as energy, water and communication, can be particularly promising.
These industries are regulated, with revenues linked to inflation. This means that investors can feel relatively strong assurance of getting decent returns on their investments provided such firms remain operational.
3. Seek out European companies who are themselves open to partnering with American investors.
Every business can use a capital injection while others are ripe for acquisition. Whatever the case, American companies have an upper hand due to the strength of the dollar. The Covid-19 pandemic dampened the economic fortunes of many companies, but the aftermath opened doors for M&A transactions involving U.S. firms.
Some of the best strategies to find European companies open to American investors include reaching out to M&A advisors, investment bankers and checking the latest news.
4. Educate yourself about ESG—and build a clear plan.
American investors must seek to learn more about environmental, social and corporate governance (ESG) considerations for both local and international investors. European governments have taken a proactive approach to protecting the environment, and they usually impose hefty fines on firms that breach ESG rules.
Failure to put in place an ESG framework can even repulse potential investors, high-potential employees and clients. For best results in building an ESG initiative I recommend these four steps.
1. Conduct a materiality assessment.
2. Establish a baseline.
3. Determine objectives and goals.
4. Conduct a proper market analysis.
5. Consider the range of industries available to American investors.
While European infrastructure assets are some of the most popular investments for Americans, there is also a lot of interest in the printing, packaging and retail industries.
American leaders should seek business models that are well-suited to generate revenue for a long time, such as opportunities in industries that are tightly regulated and linked to inflation.
6. Learn from a few notable European M&A transactions involving U.S. investors.
In 2022, Blackstone, an American company, financed a take-private transaction of Atlantia by Edizione. The acquisition was valued at €54 billion. Edizione is the investment vehicle of the Benetton family, which is now the majority shareholder of Atlantia, while Blackstone is a minority stakeholder.
2022 also saw the recapitalization of Mileway, a Dutch last-mile real estate company. This recapitalization, which also involved Blackstone, was valued at €21 billion.
Finally, Brookfield Infrastructure Partners partnered with DigitalBridge Group to take a 51% controlling stake in GD Towers, the mobile telecommunications tower business of Deutsche Tleekom AGR, in a $17.5 billion transaction, on a consolidated basis, including the assumption of net debt.
Investors should always be sure to seek out high-quality assets, stable cash and exemplary CAGR.
Is your company seeking a merger or acquisition in Europe?
The EU is a capitalistic economy, but there are strict regulations that must be adhered to by investors, including both ESG and carbon emission requirements. American investors should be particularly careful to ensure they consult with experienced transaction advisors to ensure they do not breach any of the rules and get penalized heavily for infringements. I hope this article offers some valuable strategies and insights for American leaders seeking to invest in the European economy.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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