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Cross-border deal boom predicted in 2021

by LLB Editor
13th Sep 21 11:34 am

Over three-quarters (77%) of private equity fund managers expect the volume of cross-border deal flow to make a full return to pre-pandemic levels by the end of 2022, aided by an end to travel restrictions and improved digitisation, according to new research.

Of these, over a third (37%) of respondents expect deal flow to fully normalise before the end of 2021. A further 40% expect this to happen in 2022, while 16% expect it in 2023. UK-based private equity firms are most confident of a fast recovery, with 44% of respondents believing that normalisation will occur by the end of 2021, while their European (34%) and North American (33%) counterparts are slightly more conservative.

New analysis2 shows that 2021 has already seen significant volumes of M&A. In H1 alone, 28,175 M&A deals have been completed, a 27% increase on the whole of 2020 and 7% higher than the first six months of any other year since at least 1999. The data also highlights that those deals had a record-setting combined value of $2.82 trillion—up 132% compared to last year, and almost 20% more than the previous all-time high recorded in 2007.

The new study, ‘Recovery to Rediscovery: Capitalising on a Changed Private Equity Landscape’, was commissioned by Auxadi, a leading provider of accounting, tax and payroll services to private equity, real estate and multinationals, and was based on interviews with 100 senior-level private equity investors based in the UK, Continental Europe and North America with average assets under management of €14.4 billion.

The research highlights the extent to which private equity managers are increasingly targeting overseas acquisition; GPs estimate that of the 18 acquisitions made on average by a private equity fund over its lifetime, over half (52%) will have a cross-border element.  Regionally, North American GPs are most likely to engage in cross-border acquisitions, estimating that 57% of deals will be done overseas, ahead of the UK (51%) and Europe (48%).

The most attractive overseas markets for investments continue to be the established Western geographies, with most respondents planning to invest in Europe (92%), the UK (85%) and North America (76%) over the coming five years.

Auxadi’s report reveals several challenges faced by GPs in conducting to cross-border deals that can derail the process; 41% of respondents cited different compliance regimes, closely followed by cultural differences (40%) and insufficient levels of transparency in information supplied during due diligence (39%).

To mitigate the risks involved in cross-border transactions, the study shows that a sizeable proportion of private equity firms have already taken steps to outsource the running of some elements of their fund to third parties, with many more planning to do so in the future. For example, almost half (44%) already outsource regulatory reporting requirements and a further 38% said they will do so going forward.

Rima Yousfan, COO at Auxadi said: “Despite the continued impact of Covid-19, GPs are clearly optimistic that cross-border deal flow is well on its way to making a swift recovery, particularly as valuations may be considerably more attractive further afield than their home market.

“With over half of a private equity fund’s acquisitions expected to contain a cross-border element, it’s vital for GPs to streamline what can be a very complex process with unfamiliar compliance and regulatory regimes creating unexpected roadblocks.  Our clients find that working with a partner with local experts on the ground and an intimate knowledge of the local market conditions can make a huge difference to the chances of success.”

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