Appetite for cross-border acquisitions and investments is ramping up following uncertain times, according to our latest research report, ‘Recovery to Rediscovery: Capitalising on a Changed Private Equity Landscape’[1] and private equity firms highlighted that there are distinct differences in cross-border strategies between regions. Rima Yousfan, COO at Auxadi, shares her insights as to how managers are planning to maximise on cross-border opportunities in the coming five years.

The majority of private equity fund managers said that they expect to make between 15 and 20 acquisitions over the lifetime of their funds, and around half of those acquisitions are expected to be outside the fund’s home country.

Delving deeper into the data shows distinct differences in strategy depending on the respondent’s home region.

UK fund managers expect funds to have the highest number of acquisitions at 23, closely followed by North America (18) – both of which are significantly more than Europe (13).

The data also highlights, that managers in both Europe and the UK expect to split their domestic and cross-border deals fairly equally, while North American managers plan to make more international investments.

Businesses, sectors, economies, and lifestyles worldwide have all been greatly affected by the pandemic. According to a survey by McKinsey back in August 2020, 70% of some 2,200 European SMEs said their revenues had declined, 20% were worried about defaulting on loans and having to lay off staff, and 28% thought they would have to cancel growth projects.

According to our report, though, economies currently experiencing low interest rates, particularly North America and Europe, have curtailed opportunities for return on investments, providing an optimistic outlook for the private equity sector. There’s now a renewed interest in cross-border transactions into countries where there are riskier, but potentially higher, opportunities for returns.

When asked to identify the biggest drivers for cross-border deals, our respondents provided some interesting insights.

While EU based managers seem to identify volatility as a main driver for cross-border deals, the UK managers were torn between volatility, dry powder and cheap debt. North American respondents clearly consider cheap debt as a catalyst for their cross-border deals.

The private equity sector has been able to continue operating and completing transactions during the pandemic, albeit at a reduced rate, thanks to increasingly digitised processes. However, as the world reboots, there are still significant practical barriers to cross-border investment.

So, what obstacles are private equity fund managers facing when investing across borders?

Private equity firms expect the biggest challenges to cross-border deal flow to be differing compliance regimes (41%), followed by cultural differences (40%) and then insufficient levels of transparency in information supplied during due diligence (39%).

These challenges have been exacerbated by the lack of in person meetings and due diligence visits, highlighting the importance of relying on expert local administrative support. Similarly, while investor appetite is encouragingly high, respondents also acknowledged that the complexities they face are many and varied; regulatory frameworks (cited by 65% of respondents), tax regimes (63%) and increased competition for assets (57%) were just a few of the issues mentioned, suggesting a pressing need for comprehensive, expert administrative support on the ground.

Conclusions

In the aftermath of a challenging 2020, regardless of differing geographic and cultural nuances, our report highlighted that private equity investors are keen to make up for lost time – enthusiastically looking to capitalise on new cross-border opportunities. Private equity firms have already taken preparatory steps to either start or increase the level of outsourcing they undertake, freeing up teams and allowing them to fully concentrate on the growth opportunities present in a potentially fruitful post-Covid landscape.

Auxadi is a leading provider of tailored accounting, tax and payroll services for private equity and real estate funds and multinational companies, we’re best placed to help with international deals and cross-border investment. Operating in 50 jurisdictions across Europe, the USA and Latin America, we provide an end-to-end solution through cloud-based technology to make your lives as easy as possible.

Our IT platform, employees and methodology are all designed to act as a seamless extension of your accounting departments to ensure that your administrative requirements are met across your real estate investment portfolio, no matter the volume of deal flow.

With more than 40 years’ experience we can provide everything you need to get your cross-border investments moving and are experts when it comes to working with multinational companies, private equity and real estate funds.

Download our full report here, and get in touch with us today to discover exactly how we can make your life easier.

[1] ‘Recovery to Rediscovery: Capitalising on a Changed Private Equity Landscape’ report, published by Auxadi in June 2021

Local Knowledge – International Coverage

Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.

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Rima Yousfan
Chief Operating Officer
Auxadi

All information contained in this publication is up to date on 2021. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.