Bridging Borders: Key Trends and Strategies in UK-US Cross Border M&A
· Posted on: January 15th 2025 · read
For United Kingdom (UK) businesses, the allure of the United States (US) is undeniable. As the world’s largest economy, the US offers unparalleled access to capital and a market available for expansion. Whether it’s raising investment capital to fuel growth or acquiring strategic businesses, crossing the Atlantic can be a transformative step for UK companies.
However, with great opportunity comes complexity, and success requires not just ambition but also a clear strategy, meticulous planning, and expert advisor guidance.
In this article, we explore the sentiment in the US market from a mergers and acquisitions (M&A) perspective and the key challenges to anticipate. We interviewed our US colleague, Bill Chapman who is a Managing Director with Baker Tilly Capital, LLC in the US and has more than 30 years of experience working in M&A with a focus on the mid-market, across a broad range of industries to give us his view.
This insight is part of the 2025 MHA Global Transaction Report
View the reportThe US is similar to the UK in terms of dry powder available at private equity (PE) and debt funds. What is your sense of their appetite in the US to deploy those funds globally and in particular to UK businesses?
PE and debt funds have more than $1 trillion of dry powder available. They are eager to deploy those funds, but for the right businesses / transactions. We have seen many of the largest US PE funds establish international offices and they usually start in London. Interestingly, we have begun to see middle market PE funds also establish offices internationally. For the lower end of the mid-market, there is an appetite for cross border transactions, with most of the portfolio company bolt-on activity taking place in Canada with some appetite for Mexico. In many instances, where bolt-ons are being considered, PE funds are also open to looking primarily in the UK and then in Western Europe.
Growth of platforms through a buy and build strategy has been and will continue to be a cornerstone of PE strategy where they will work with platforms to ensure they maximize synergies and drive integration. This won’t be a newsflash, but US PE funds are looking at bolt-ons to gain access to customers and markets which are relevant to a platform.
From a debt fund perspective, there are many funds which have an international mandate and will deploy funds globally for transactions. Most of these transactions are cash flow loans and are underwritten based upon adjusted EBITDA and the underlying equity value of the borrower.
There is an appetite for cross border transactions, with most of the portfolio company bolt-on activity taking place in Canada with some appetite for Mexico.
PE and debt funds have more than $1 trillion of dry powder available.
Many UK businesses see the US market as particularly attractive for international expansion. With a new President and Administration in the US how do you believe this may affect the appetite for UK companies to seek acquisitions in the US , particularly if policies are implemented to increase tariffs?
It is expected that the new Administration will encourage investment in and acquisitions of businesses in the US.
On the transaction services / due diligence side we’ve recently completed engagements including a Korean company acquiring a US business, supporting a Japanese company looking for operations in the US, as well as working with a very large international fund looking to make acquisitions in the US. For outbound deal activity we are proposing due diligence services. For a large US food business who are looking globally for opportunities and another US consulting firm looking globally to make acquisitions. We have differentiated ourselves by connecting with our global colleagues, including MHA in the UK.
The Federal Reserve cut its benchmark interest rate again in December 2024 with the rate lowered by 25 basis points to a target range of 4.25% to 4.50% — a full 1% drop since September. Generally, the stock market has been up post-election as economists are predicting lower taxes and less regulations under the new Administration.
In the debt market funds have a lot of dry powder that needs to be deployed. We expect it to get competitive from a lending perspective. On the PE side, due to tailwinds of an abundance of available capital and lower cost of debt, we expect to see an uptick of activity. Additionally, with stock markets being up, giving the publicly held companies acquisition currency to look at larger deals, thus we expect to see an uptick in strategic acquisitions and maybe IPO’s. Finally, with the market up and people trying to raise new funds, and LP’s looking to rebalance portfolios there is pressure on PE funds to drive acquisition activity and liquidity events which could elevate more activity throughout 2025.
With the market up and people trying to raise new funds, LP’s have to rebalance portfolios so pressure on PE funds to drive activity and liquidity events which will press more activity in the first couple half of 2025.
The Federal Reserve cut its benchmark interest rate again in December 2024 with the rate lowered by 25 basis points to a target range of 4.25% to 4.50% — a full 1% drop since September.
What are your words of wisdom for UK businesses looking to enter the US market through acquisition rather than organic growth?
If you are a UK business looking to buy an established business in the US, then when you are considering your acquisition strategy you need to be cognizant of the cultural differences and consider this carefully and how you will manage this during a deal process.
In addition, inflation has impacted US companies in recent years, so be mindful that this may give a misleading read on revenue growth. As such, you need to analyze how much growth was price increases vs. volume increases. If the revenue growth is not supported by volume growth, then you may want to reconsider your deal pricing.
Ensure you use our tax advisor services as you do not want to be ensnared on the US, state and local tax systems, which can get complex in a big hurry. You cannot structure around these taxes and if they haven’t been paid, they stick to the assets which have been purchased which would result in an unrecorded liability that you would inadvertently assume post deal.
Finally, the regulatory environment in the US is clearly different, so select a law firm counsel that has M&A transactional attorneys who are intimately familiar with cross border transactions.
"Inflation has impacted US companies in recent years, so be mindful that this may give a misleading read on revenue growth. As such, you need to analyze how much growth was price increases vs. volume increases."
Are there any unique due diligence considerations for UK companies looking to acquire US companies and vice versa?
What is true in the US is also true internationally, albeit the UK is not as egregious as some other countries when it comes to statutory pensions or severance. In some countries we have found the unrecorded liability for these items to be gigantic. Be aware that there is potentially an unrecorded liability that you assume. So, in the US buyers, at least, would want to adjust the purchase price to absorb those costs.
