US MARKET PENETRATION BY ACQUISITION in 2018

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Market Penetration by Acquisition

Mergers & Acquisitions – Buy Side

Corporations and private equity firms foresee an acceleration of merger and acquisition (M&A) activity in 2018, particularly in terms of the size of those transactions. From a sector perspective, technology and healthcare will drive M&A activity in North America because of the U.S.’s strength in tech innovation and the aging populations in advanced economies. Further consolidation within the energy and raw materials sectors should also continue to generate transactions in the coming years.

Companies involved in M&A have been most interested in acquiring relevant technologies. This in addition to expanding customer bases in existing markets, adding to product offerings and diversifying services rank as top three strategic imperatives. M&A also helps companies improve synergy, diversify, grow, expand their products and increase supply-chain pricing power and market share.

Some factors that have made foreign direct investors (FDIs) favor the U.S. for M&A deals include the recent slow international growth, political crises & ongoing wars in certain areas of the world, along with global economic uncertainty. Despite this uncertainty (listed as a key concern in Deloitte’s 2018 M&A Trends Report), M&A is rising to the forefront. FDIs can use M&A as a tool for both smaller, strategic, niche acquisitions as well as bold transformative deals.

In PwC’s Global CEO Survey, four out of 10 CEOs said their companies are targeting the U.S. for their growth prospects. That was reflected in the 6% rise in inbound deal volume through Q1 2017. A few months later, the pace picked up, with year-over-year volume up 10% through May. This could be a sign that overseas businesses are looking to the U.S. to compensate for uncertainties in markets such as China, South Korea and Russia, where economic prospects aren’t as stable. These survey findings are consistent with other analyses, such as a UNCTAD forecast that the U.S. will be the favorite investment destination of global business through 2018, followed by China and India.

As markets adjust to ongoing political and regulatory changes, the M&A market should be buoyed by strong fundamentals and the potential for pro-business policy changes. In particular, opportunities may emerge from potential new U.S. policies, such as cash repatriation, corporate tax reform and more modest regulation.

Fears of increasing protectionism in 2016 morphed into uncertainty about policy that could affect global trade. However, despite trade barrier speculation, cross-border M&A has already been a hallmark of deal making in 2017, with a resurgence of deals between the U.S. and Western Europe. Companies are looking everywhere for pockets of growth, although the main focus has shifted back to developed markets, according to the EY 16th Global Capital Confidence Barometer (CCB).

Sluggish economic growth slowly spread out throughout the world over the past six years has made it more difficult to find the right partner for accelerating business growth. Only 1 out of every 6 investments by venture capitalists in the U.S. delivers its projected return on investment.  With such dim prospects, how can FDIs take advantage of the M&A momentum, hasten their business growth, and overcome deal barriers?

Companies get the most out of their M&A deals with proper focus, preparation and execution. There is no substitute for a well-thought-out M&A strategy and a solid execution plan to improve prospects for the completion of a successful M&A deal.

COGNEGY can help FDIs every step of the way. COGNEGY has teamed with many foreign firms to identify the right target, engage in project discussions, perform both business and legal due diligence (with trusted partners), outline business valuation, craft deals, negotiate, integrate, and accelerate growth.

Please contact Phil Jafflin with any questions you might have: phil.jafflin@cognegy.com

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Competitive Manufacturing

Summary
How things change… A new BCG study released on April 25, 2014 throws away out-of-date perceptions on which countries have the lowest manufacturing costs. If China is still ranked #1 in terms of global competitiveness, its position is now under pressure with the United States a close second. The world is not divided anymore between “low cost” emerging countries and “expensive” advanced economies.
What does it mean for investors and decision makers? Where should your next production plant be located?

Manufacturing Cost Competitiveness (MCC)
BCG’s study tracked 25 major exporting countries, accounting for close to 90 percent of global exports of manufactured goods. Their MCC index is built on four pillars of manufacturing competitiveness: wages, productivity growth, energy costs and currency exchange rates. Adjustments were made to take into account other drivers influencing a nation’s competitive position, such as available infrastructure, security issues, ease of doing business, corruption level…

Ranking and evolution
Apart from China and the USA, the final Top Ten MCC ranking includes the U.K. (4), the Netherlands (6), Belgium (9) and France (10) but this “photo finish” doesn’t tell the full story. A clearer picture is offered when classifying the countries in four categories, reflecting the trend of their competitive position. Highlights:

   Under Pressure: Rapidly deteriorating competitiveness affects Brazil, Russia, China, Poland, Czech Republic…
   Losing Ground: High cost countries coping with rising energy costs, high wage costs and no productivity gains. Belgium, France, Italy, Sweden…
   Holding Steady: Countries maintaining their position relative to the global leaders: Netherlands, U.K., India, Indonesia.
   Rising Stars: Increased competitiveness with gains in all four index components: U.S.A., Mexico

Click here for the press release on the BCG study.

What are the implications for business leaders?
The first message is that decision makers need to keep track and adjust to dramatic and rapid changes. Old (as in ten-years-old) perceptions stand in the way of new realities. “Overall costs in the USA are 10 to 25 percent lower than those of the world’s ten leading goods-exporting nations other than China”, the report says, and on par with Eastern Europe.
Entrepreneurs do not move their production facilities based on the latest trend or hype. Such a move has huge implications, is very costly and requires an economic horizon of at least one, usually two decades. This is true for medium sized firms as much as for global corporations.
This is why managers and investors should base such a strategic decision on solid cost structure evidence and the analysis of long term trends. Just like when buying shares on the stock exchange, if you follow the mainstream opinion, your late move is likely to end up in painful losses.

Where should your production plant be located?
Whether looking at added capacity or transplanting production, the decision of where your new plant should be built is obviously the subject of a careful strategic analysis. You will make a first selection of countries where wages, energy costs, productivity and currency all point in the right direction, and where the other drivers (ease of doing business, infrastructure, stability, rule of law…) are consistently positive.
Each firm is however a unique case, only partially influenced by macroeconomics. After all, your first concern is with your market, your customers, your people and your identity. This is why you will also want to consider a broad range of company-specific criteria, such as:

  • Competitive sourcing and efficient supply chain
  • Location and dynamics (growth, innovation) of your main markets
  • Availability of skilled labor and qualified specialists
  • Ease of adjustment to the local culture
  • Global market prestige and local market access
  • Access to local funding.

Building a production plant in a distant, foreign country, is a major strategic decision, one that might ensure growth and profitability for decades to come, if done right. When deciding where to move, take a new look at today’s evidence and tomorrow’s evolution, not at yesterday’s performance.

What are you waiting for…?

BELGIUM IS LEADING DIRECT FOREIGN INVESTMENT INTO THE US.

Data released on March 14, 2012 by the U.S. Bureau of Economic Analysis shows that in 2011 Belgium was the leading foreign direct investor into the United States. 

Foreign direct investment in the United States (FDIUS) measures the equity capital flows, reinvested earnings and intercompany debt flows between US affiliates and their parents abroad. In order words it is a measure for the ‘business activity’.

The key findings of the published document on FDIUS are:

  • Total investment in 2011 reached $227.9 billion which is only a small 4% decrease over the previous year
  • Belgium is the leading foreign investor with $43.8 billion (19.2%) followed by Switzerland ($29.2b) and Luxembourg ($19.4b)
  • Other leading countries were Japan, Canada, the Netherlands and Germany

It is remarkable that countries such as the UK, France, India, Brazil and China are absent from the top 10 list. The report also shows that Europe remains the most important region to invest into the US representing 65% of total investments.

The question is what have they seen that you have not?

The United States economy continues to pick up and various economic indicators are illustrating this steady – however slightly bumpy – ride north.

It enjoys a business success culture that puts up few hurdles to start a business, providing access to a huge homogeneous market with 312 million consumers who have a healthy appetite for things better and new.

What are you waiting for – it’s only one feasibility study away.

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All data used in this article are based on the ‘Foreign Direct Investment in the United States’ document released on March 14, 2012 by the Organization for International Investment. Data are preliminary and subject to revision.