Investing in Europe
While many U.S. companies – large and small – lick their recession-induced wounds and rehabilitate their financial health, opportunities abound to expand into the European market. For businesses willing to take some risk, this time of economic recovery offers the chance to get a leg up on the competition.
During its recent “Helping Your Business Grow” program, Kolb+Co. invited a panel of advisers from Germany, Italy, the UK and America – all members of IGAF Polaris -- to discuss investing in Europe. Through the panel members’ candid commentary, guests were able to glean insight on dos and don’ts for doing business abroad. Many left feeling invigorated and excited about the prospect that there just might be hope emerging from this long stretch of financial disarray. And it just might exist on the other side of the Atlantic.
Why should I invest abroad NOW?
Of all times to consider a significant financial outlay, a European acquisition or expansion is the last thing on the minds of many American business leaders. Here are a few reasons this just might be the time to take the plunge.
1. European countries are receptive to American ownership.
According to Mark Worsey, a partner with Buzzacott LLP, in London, it is very common in Europe for companies to be owned by U.S. companies. In fact, half of his clients are Americans who have interests in Europe. Ulrich Britting, a partner with Best Audit in Frankfurt, adds that “Investors are always welcome in Germany.”
2. It’s a new world.
The market crash has forced the world to look at new ways of doing business. “We need to look at things in different ways,” says Roberto Corciulo, a partner with Ardito-Cojutti-Corciulo-Graffi Brunoro-Zilli in Italy. “I am optimistic in general that [businesses] will move forward. Things have changed, so we need to determine how to work in this new world.” Britting adds that businesses that are ready for change and willing to adjust will do well as the world becomes smaller.
3. Big isn’t necessarily better anymore.
In this post-market-crash world, factories are looking for new suppliers who can be efficient and provide good service. Companies that were previously considered too small for the market now have a chance to compete with the big players. “This is real change,” says Corciulo. “This gives us real optimism.”
4. Financing may be easier to get oversees than in the United States.
Worsey says that buyers of British companies can use assets of the company they acquire as debt security. This provides a growth opportunity for U.S. companies who may be struggling to receive financing here in the U.S. Britting adds, “If you have a lot of money and assets, it’s easy to get financing in Germany. It’s more difficult for companies with fewer assets.” However, Germany offers state-guaranteed loans for companies in financial difficulty. Germany’s governmental bank finances new businesses and offers several programs for entities in the developmental stage.
5. European companies have greater transparency.
Many U.S. companies are surprised at the level of transparency most European countries demand of their businesses. “This comes as quite a surprise to U.S. companies,” says Worsey. While this transparency may make private Americans a bit squeamish, it also allows for easier research and due diligence when seeking an acquisition opportunity.
6. The cultural differences are not as great as you might think.
Yes, there are language differences and differences in accounting and government regulations. But Britting says that a successful cross-country acquisition comes down to: What are your goals? Do you trust the company? “You don’t need to expect that things are done the same way, but you need to educate yourself and find consultants and business partners you trust,” he says. “Then you are able to start with the right structure and make the right decisions, regardless of cultural differences.” Business is business, no matter which side of the ocean.
7. Interest rates are low.
In some cases, interest rates are as low as they have ever been. This makes for an interesting market for U.S. companies to invest in the UK, Germany, Italy and beyond. However, as economic growth continues to rise, so will the interest rates, so the window of opportunity may be shrinking…
What challenges exist?
Clearly, we must respect the language, political and cultural differences when seeking opportunities abroad.
Panelist Mark Sobczak, Kolb+Co. shareholder and managing director of the firm’s Auditing and Accounting Division, says that the first hurdle for Americans to overcome when doing business abroad is, well, being American. “We seem to think the way we do things is the correct way,” he chuckles. For example, the world has adopted International Financing Reporting Standards (IFRS) for financial reporting standards while the United States uses Generally Accepted Accounting Principles (GAAP). This makes it difficult to accurately compare financials of companies in different countries. For a comparision between IFRS and GAAP, click here.
Britting echoes Sobczak’s sentiments. “The problem with American investors comes when they try to Americanize the German entity too early. We like being German and want to act like Germans. If Americans take time to understand our culture they will see that Germans want to work for them.”
Sobczak says that the most successful foreign transactions are those with trusted advisers on site. “You need to have good people you can trust to make sure you are getting accurate information on important items like payment and financing terms,” he emphasizes. “You can’t run a European company from the U.S. without someone you trust on site in the native country.”
Worsey adds that having advisers who understand the European Union (EU) Law is critical to success. “Our labor laws are quite different from those in the U.S.,” he says. “Human resources issues, in particular, have caused significant surprises for many U.S. corporations I’ve represented.” Strong advisers are important, but it is critical that the business leaders also be present. He says that the biggest mistake an acquiring company can make is to not get involved.
What does it take to succeed?
Like any business proposition, acquiring abroad will only be successful with a well thought-out plan, appropriate resources and a strong team of advisers. “You need to develop a relationship with your advisers over time,” says Sobczak. That’s what Kolb+Co. has found with IGAF Polaris, a global association of nearly 400 accounting/advisory firms. “We personally know most of the managing partners in firms from Asia to Europe; it’s almost like picking up the phone and calling a partner on the other side of the office. Our clients who want to do business abroad benefit from this long-standing relationship.” Members of IGAF Polaris must maintain a high standard of qualities and if they don’t, they will be asked to leave the organization.
The panelists are members of IGAF Polaris. Britting says, “We trust each other. Because we know each other personally, there is a short communication line.” Corciulo adds, “The relationship is very strong and very effective. I believe in these guys.”
Worsey sums up IGAF Polaris by saying “I wouldn’t recommend clients to a firm I don’t trust.” Five years ago, a client based in Florida opened an office in England. “Now they have operations in Sweden, Luxemburg, Denmark, Holland and Belgium,” he says. “I introduced the client to six different IGAF partners and it has worked very well. I know they will get good service.”
In the end, it is clear that we all have a lot to learn from each other if we respect cultural differences. “There are good [business practices] in Europe and in the U.S.,” Britting says. “Investors who are wise enough to take the best from each will gain a competitive advantage and become more successful.”
Are there opportunities to sell my business to a European company?
With the exchange rate between the Euro and the dollar so favorable for European countries, it seems logical that the market would be ripe for U.S. companies to sell to Europeans. So why isn’t there more interest on the part of foreign companies to make acquisitions in the United States?
Britting says that companies in Europe, like those in America, are still recovering from financial crisis and are understandably cautious about taking on any major transactions, especially those in foreign countries with different laws. Additionally, the United States is competing with China for investor interest. “Frankly,” he admits, “Asia is a more promising market right now.”
Dale Elliot, CEO and founder of FCM Advisory Group, Ltd. and former president and CEO of a Fortune 500 firm, says that fear is currently driving our market. “No one wants to be the first one to make a mistake after a recession,” he says. “Companies that might put themselves on the market are afraid of selling at the bottom. They have the attitude, ‘If I’ve made it through this difficult market, why would I sell now?’” He says that companies who put fear aside will be the ones who come out ahead. “Those who are willing to take the risk have a chance to succeed while the others sit on the sidelines and watch.”