M&A activity is truly global now and it has been for some time. Given how interconnected the world economy is, the barriers that country borders have to complicate deal closings are now being hurdled like never before. Buyers are all over the world.
This was clear in a recent deal announcement that I reviewed. Pacific World, a portfolio company of Levine Leichtman Capital Partners (LLCP), acquired Fing’rs Europe, a provider of nail and beauty care products in Europe. Pacific World is located in Lake Forest, Calif., and provides similar products under the Nailene, Fing’rs, Revlon, and Bio Oil brands.
I have highlighted the term “portfolio company” in the paragraph above to emphasize this point: Equity firms use platform companies to establish a foothold in an industry, as we have discussed before. The platform then is grown and expanded via “add-on” acquisitions. This is clearly the case with Pacific World’s acquisition of Fing’rs Europe.
Turns out that LLCP initially acquired Pacific World back in February 2009 for approximately $50 million. Now let’s think back to 2009. We were in the midst of a recession and deal making had fallen off a cliff. Financing for deals was hard to come by and fear was dominating boardrooms around the world. But it was not stopping the folks at LLCP. They had a strategy in place and were following it. So despite the recessionary winds that were blowing at the time, LLCP maintained is long-range plan and made this acquisition (assuming that the need for fingernail care was not going away!). My point here is that no matter what the economic situation, deals are still closed. Keep that in mind as you time the exit from your company.
Fing’rs was initially founded in the U.S. during the 1980s, according to the company’s website. Fing’rs Europe independently took form in 1990 out of Zurich, Switzerland. Over the years the company has established itself as one of the largest manufacturers and distributors of artificial nails. The company also offers nail glue, nail care, as well as eyelashes and other beauty accessories. Fing’rs Europe has its manufacturing plants in the Czech Republic and Brazil and delivers products to the entire European market, the Middle East, and Russia. Fing’rs products are available in over 20,000 retail outlets Europe-wide. The company claims that a Fing’rs product is purchased every 2 seconds.
Pacific World Corporation is a leading innovator and supplier of proprietary nail and beauty care products to consumers through food, drug, and mass retail channels worldwide, as stated on the LLCP portfolio page. Pacific World owns and manages internationally recognized and best-selling brands within the nail care and specialty skin care categories that hold broad global appeal to female consumers ranging in age from the tweens/teens segment to young adults and mature women. The company was founded in 1973 and, as mentioned, is headquartered in Lake Forest, Calif.
The synergies between these two companies are very clear: “The acquisition of Fing’rs Europe gives Pacific World the capability to broaden its distribution efforts.” Pacific World, which was already one of the largest manufacturers of nail products, now gains a manufacturing and distribution arm in Europe that is second to none in the region. This is a perfect example of what drives cross-border deals today.
The Cross-Border Challenge
The important thing to think about if you are considering the sale of your middle-market company is this: LLCP is just one example of an equity firm with a platform looking to grow via international acquisitions. In this case, it was a U.S.-based equity firm and its U.S. platform. However, there are hundreds, if not thousands, of equity firms throughout the world that have platforms that would jump at the chance to gain access to, or expand into, the world’s largest economies by acquiring a U.S. middle-market company.
Keep in mind that LLCP has 19 active platform companies in its portfolio. Their initial investment in these 19 companies ranges from a low of $10 million to a high of $86 million. So they truly are focused on the middle market. Again, LLCP is just one example of this. I could find you lots of others.
The bottom line: If you plan on finding a buyer for your company, don’t just think domestically. Think broader than that. Our economy is truly global now. Every country is dependent and interdependent with nearly every other country’s economy. Just look at what happened following the tragic tsunami in Japan last March. Supply chains were disrupted around the world for several weeks (or even months) after a number of companies had their operations knocked off line. The free ebook, Building and Exiting A Desirable Business, touches upon this.
Now having said all of this, keep in mind that finding offshore buyers is a very challenging process. You really need to know what you are doing and how to approach the appropriate companies and individuals within the companies. You need to research why a foreign entity would be interested in your company. For example, do they already have a foothold in the U.S.? If not, are they interested in establishing one? You need to be able to discuss in detail your operations and how they would be a good match for the acquirer’s offshore operations.
Because of the complexities in finding and negotiating with offshore buyers, I highly recommend that you find a reputable M&A advisory firm to help you. Not every middle-market company is a viable target for an offshore buyer. An experienced firm that has the experience and research capabilities can position your company in the market to attract a wide audience of potential buyers whether they are domestic, international, equity firms, or strategics.
So realize that there are lots of LLCP’s and Pacific World’s out there looking for deals. You will probably just need some help finding them if they are located across the ocean.
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