In the last year we have seen a change in the attitude of potential buyers in India and China towards the purchase of mid-market businesses in the West. Jamie Hope, director at Catalyst, examines the opportunities.
There are two reasons why Indian and Chinese buyers are looking more closely at mid-market UK businesses.
Firstly, many companies here have valuable skills and know-how in manufacturing and other sectors and secondly, for easy access to European markets.
It is not a straightforward option to deal with Indian and Chinese buyers, although it can bring significant rewards. Owners who decide to go down this track must be prepared to adapt expectations and behaviour to meet differing social, economic and corporate cultures in these countries although it is important not to overdo differences. The simple fact is you cannot treat buyers from that region the same as buyers from the West.
Indian and Chinese buyers cannot be hurried; decisions are taken by committee and based on consensus, so decision-making takes longer. Particularly in China, there are merger control provisions for overseas acquisitions. This can be frustrating although there is no option but for sellers and advisors to be patient.
You can’t just say: here’s some information on our business, we want an offer in four weeks. They do not behave like that. When an Indian or Chinese buyer understands an asset and can identify the strategic need to own it, they are prepared to pay good prices. If you build a relationship with a buyer, you can discuss valuation and it is possible to increase prices a more subtle way.
Face to face communication is vital. Eastern buyers expect sellers and their advisers to meet them in person.
The lack of experience of making international acquisitions can impact the process, with the buyer more reliant on the UK management of the asset they are buying, reducing the likelihood of large-scale post-merger redundancies.
There is no doubt that patience is vital with deals taking three to four times longer than in the West but maximising Indian and Chinese interest could prove highly profitable for sellers.
In times when funding for transactions has in recent months become more difficult for sellers looking to the East could be the best option.
In addition, the potential extra financial returns to the seller and future commercial returns to the buyer surely justify the greater effort required on all sides.