Passport to M&A Success: Selling to an International Buyer

Foreign buyers of U.S. companies announced a record-breaking $491 billion in deals in 2016. If you’ve considered putting out the international “For Sale” sign in 2017, you’ll likely find a fertile environment. But it’s important to understand that selling to a foreign company is different from selling to a U.S.-based one. Here’s what you need to do to prepare.

Cultural stake

Before marketing your business overseas, consider whether its culture can support an acquisition by a non-U.S. company and whether your business is likely to thrive under such ownership. Even if a foreign buyer regards it as an advantageous acquisition, a bad sale could negatively affect your valued employees, and if you maintain a stake in the business after it’s sold — you as well. Understand also that foreign buyers are typically interested in companies with a minimum annual revenue base that justifies the increased risks and expenses related to international deals.

Preparing for an international deal can take longer than getting your company ready for a domestic sale, so be patient. If at all possible, begin planning as soon as you think you might eventually sell your business. Identify a few key managers who can be trusted to spearhead the preparation and valuation process.

International value

To obtain an accurate valuation of your company, look for an expert with international experience. If you have a specific buyer in mind, you may want to hire a business valuator based in the buyer’s country, or at the very least someone with knowledge of the country’s financial regulations and customs.

Financial statements should be prepared according to Generally Accepted Accounting Principles (GAAP). Be ready to present audited financial statements from the past several years. You don’t, however, need to worry about reconciling the differences between domestic GAAP and International Financial Reporting Standards. That’s the buyer’s responsibility.

You can make your business easier to appraise by eliminating discretionary expenses as much — and as far in advance of the sale — as possible. A prospective buyer doesn’t want a target that frequently readjusts its EBITDA (earnings before interest, taxes, depreciation and amortization) for discretionary expenses. And if your company has substantial in-process research and development expenditures, keep supplementary accounts that detail the expenses.

If you’ve been expensing your fixed assets, you’ll likely need to start capitalizing them instead. Doing so will make your earnings from one reporting period to the next appear less volatile and enhance your reported cash flows relative to capital expenditures.

Ready for review

Once you reach the due diligence stage, provide your prospective buyer with a streamlined, easy-to-read summary of your company’s assets and expenses. You’ll also want to give the buyer detailed information about your business processes — including internal controls, information technology, compensation plans and operating manuals for specific products.

All of your properties should be carefully outlined and annotated. This includes intellectual property, such as licenses and trademarks. Foreign buyers often consider intangible assets the most valuable pieces of any deal, so ensure that you fully own the rights to all of your intellectual property.

You can make it easy for buyers to access and review your company’s data off-site by uploading it to a secure Internet-based document storage site. Among other advantages, this gives foreign buyers a chance to get to know your company before they conduct a time-consuming in-person review.

Be prepared

It’s hard enough to execute a domestic M&A successfully. Having an international buyer that must adhere to different regulatory and legal requirements makes the process that much more complicated. Make sure you’ve prepared for sale with these different requirements in mind.

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