NEW YORK, NY / ACCESSWIRE / December 19, 2022 / In 2023 it may be an advantageous time for European businesses to consider expansion into the United States. For those European companies without a presence, the American market is a strong first choice for expansion, especially for early-stage and middle-market companies. As the largest economy in the world, the United States offers many potential benefits to companies, not only in terms of sales, networking, and capital but also for higher valuations and exits. Most of the top 50 French start-ups accepted U.S. capital over the past few years and saw their valuations rise significantly. Furthermore, public data confirms that more than half of French exits represented those companies that had a US investor. And, due to its size and global dominance, success in the US market often translates to success in other markets.
Since arriving in Europe over a year ago, Chatsworth Securities LLC has advised large and small European companies regarding the various challenges they face. Among these challenges is the difficulty of attracting local capital to grow the business. There just does not seem to be the risk capital and basic financial products or innovation in Europe compared to the US. For instance, as a share of GDP venture capital investments are ten times higher in the US than in Europe. As a result of these factors, European companies, especially those in the technology sector, are much more likely to be acquired by American firms than the other way around. Medium-term debt instruments are one product that is a significant gap in the market, forcing local entities to use very expensive factoring services costing companies upwards of 30% cost on their income statements. Chatsworth believes it is evident that having an American-focused strategy is key to many potential benefits, especially achieving an exit at a higher valuation.
Heading into 2023 European businesses face multiple challenges from economic conditions including inflation, energy, and interest rates, meaning investors interested in Europe will want to keep an eye on recession risk, the ECB, and equity valuations. At the same time, U.S. financial institutions that provide equity and debt capital and strategic acquirers are ready to speak with European businesses that are either seeking to expand into the U.S. or to be acquired by an American group. Yet, the number one reason these transactions do not happen more often is simply that European companies are not exposed to potential opportunities to raise capital or sell.
Any company interested in expanding into the U.S., attracting U.S. capital, or being acquired by a U.S. company has several options:
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Mergers & Acquisitions – Typically a company sells 80%-100% of its equity to a larger American firm. The best buyers in these situations are strategic buyers, who usually want to acquire 100%. Alternatively, there is the option of working with a buyout or Private Equity fund, which is more flexible, often allowing founders to keep up to 20% of their company. Buyout fund terms will not be as favorable, as these acquirers are working on behalf of their investors (aka Limited Partners (“LP”)). These funds have a very precise LP Agreement, which the fund abides by and whose managers always keep in mind when considering an acquisition. A strategic buyer, who needs a company as a part of their ecosystem can be identified and discussions initiated in a relatively short period of time.
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Minority Capital – This is a more difficult option because there is a smaller pool of US Investors that are interested in this arrangement. The difficulty stems from the lack of control by an investment company. This issue can be alleviated somewhat by corporate governance language being included in the closing documents or side agreements but investors have a preference for control of the board; and if the investor does not have a presence in the investment country, they consider that another level of risk.
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Debt or Line of Credit – There are financial institutions that are ready to offer sizable lines of credit to European companies that are seeking a long-term debt solution. Loans are available for the purpose of working capital, equipment purchases, new and used facility construction, and acquisitions. The length of the loan could be as much as 25 years.
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Interest Only Debt – European companies that have strong EBITDA results can access U.S. capital without an amortizing schedule for a period of up to 5 years, also known as a Leverage Buyout (LBO). The advantage of this strategy is that repayment does not include principal repayment, so the annualized cost is significantly lower, allowing an acquirer to absorb the acquisition at a relatively low financial burden. As it takes around 2-years for an acquired company to become fully integrated with the acquiring company, this could potentially be a softer and lower-cost method of an acquisition in the long term.
Learn more about technology, the economy, and current events at “The Exit Strategy“, a podcast co-hosted by Chatsworth Securities bankers Ralph DiFiore, Marcus Magarian, and Swatick Majumdar.
About Chatsworth Securities LLC
Chatsworth Securities LLC, based in Greenwich, CT, is an investment banking firm that has been providing financial advisory services to corporations and entrepreneurs since 1996. Chatsworth advises on both domestic and international M&A transactions, digital transformation, and capital raises for large and small companies and alternative investment funds. Chatsworth has deep investment banking experience in the asset management industry, FinTech, MarTech, B2B SaaS, real estate, green energy, and transition energy industries. Chatsworth has participated as an underwriter in over six hundred public offerings and has raised over $5 billion for traditional and alternative money managers and their funds.
Additional Information:
Ralph DiFiore
United States Headquarters
+1 (203) 413-9980
[email protected]
Marcus Magarian
European Office
+33 (0)7 89 01 16 17
[email protected]
SOURCE: Chatsworth Securities LLC
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