In the past year, private equity firms have invested more than $100 billion in foreign emerging markets, and these fast-growing economies are continually eager for more global PE investors. For any private equity firm operating in the middle market, understanding the multitude of factors that go into properly managing your deal abroad is critical to its success. In the United States, an increasingly competitive economic climate tainted by the global economic crisis is causing uncertainty. These occurrences, compounded by inhibitive government regulations and oversight, are strangling small businesses, the PE industry and other drivers of economic growth. As a result, growth opportunities in cross-border deals are increasingly attractive to ensure diversification of portfolios and increase returns.
As the Middle East, Africa, the Caribbean and South America begin to mature and become more politically and economically stable, investments in these regions become more attractive. Advances in technology and other first-world resources, seen and used in developed countries, are now commonly used in these regions, making foreign investments more appetizing. However, this makes the landscape more competitive. For this reason it is critical for investors to quickly grasp regional communications, languages, cultural norms, and political and government realities.
For many firms, these skill sets may not be among their core competencies. In fact, according to Ramsey Goodrich of ACG Connecticut and Carter Morse & Mathias, “You can try to complete cross-border deals alone, but the real value comes from having someone who can understand the social, cultural and economic differences between countries. We have people on the ground who understand negotiation tactics in many different countries, which is invaluable. They can translate that knowledge back to dealmaking American style.”
With that being said, several key factors play into the success of overseas deals.