Voice of the Practitioner
Many middle market firms ($10 million-$80 million in sales) have been approached by international firms, and they are generally not prepared for M&A conversations. Often, the firms are interested in accessing capital and an ownership purchase would help raise those funds. When asked, many of these firms are not averse to being listed as ‘for sale’ in catalogs to international investors.
When you look at the sheer amount of activity that falls under M&A, EDOs would be remiss to not try to play a constructive role. There are lots of Baby Boomer-owned firms, with owners moving toward retirement, and most have no plans for succession. Not all acquisitions are equal in their impact on the company and the region. Moreover, the reality is that recruitment isn’t a significant source of economic growth, while there is big upside potential in the expansion of existing firms.
The Strategy and Planning section of this toolkit addresses M&A risks and opportunities extensively. Click here for more information.
- Connect foreign-owned business with area companies
- Develop an outreach and media plan to support and welcome the new owners
- Identify issues facing newly acquired local firms
Louisville-Lexington, Kentucky Region
The Bluegrass Economic Advancement Movement (BEAM) is a regional initiative led by the cities of Louisville and Lexington to increase exports and foreign direct investment. They decided to take a proactive approach to assess the appropriate role of government and determine opportunities and actions to influence positive impacts for local companies and the region as a whole.
They established an M&A Working Group to better understand how the region can be proactive in helping existing companies deal with M&A opportunities and risks. The M&A Working Group determined that they could best help by connecting “aggregators” (i.e., attorneys, global equity firms, etc) to help interested parties find and get to know one another. The local SBDC brought in a financial services firm to provide business succession planning expertise.
Source: Interview with Jeanine Duncliffe, Director, International Economic Development, Department of Economic Development, Louisville Metro Government, Dec 2017.
Regional Economic Development Initiative (REDI) Cincinnati
Cincinnati’s “Advancing Global Competitiveness” strategic plan outlines a recommendation for increasing FDI associated with existing firms by supporting both expansions of existing foreign-owned firms that have successfully entered and grown their operations in the region and “no net loss” mergers and acquisitions.
Cincinnati’s strategy (pp. 30-31) includes three elements:
- Connecting with foreign owned businesses located in the Cincinnati region (through existing business retention program efforts) to understand their expansion plans and challenges, as well as potential opportunities for the public and nonprofit sectors to help businesses reach their goals.
- Collecting and aggregating data from conversations with existing businesses in a universal Salesforce database, managed by REDI Cincinnati, to evaluate if there are any major gaps in how the region is meeting their requirements and identify trends and issues that must be addressed at the local, state, and national levels to remain competitive.
- Encouraging “no net loss” acquisitions after foreign entities announce their purchase of a local firm by reaching out to understand the new owners’ needs and make the case for the attractiveness of retaining and growing operations in the region.
The Brookings blog What can metro areas do about foreign mergers and acquisitions? includes three additional examples:
- Columbus 2020, the region’s EDO, brings lists of potential local acquisitions on international business trips. This requires a more-intensive effort to understand investors’ interests and the needs of firms in the region.
- Minneapolis-St. Paul economic development leaders proposed deploying “rapid response” teams to immediately meet with local companies that are acquired. The teams would allow representatives from EDOs and service providers an opportunity to assist with the transition and success of the investment.
- San Diego’s Biocom uses capital development efforts to match local firms with large pharmaceutical companies, including foreign firms.
Wisconsin Ginseng and Foxconn
While Foxconn builds its new plant in Wisconsin, the company may also invest in highly-regarded Wisconsin ginseng farms. Local ginseng farmers expect to benefit from Foxconn’s investments in marketing, modernizing the industry, and research. Foxconn’s technical innovation applied to lab testing and using robotics and AI to improve harvesting processes are highly valued. Foxconn associating with Wisconsin ginseng may help Foxconn’s branding and reputation in China and the U.S. and help them gain access to medicinal product markets as well. Click here for the full story from National Public Radio.
What can metro areas do about foreign mergers and acquisitions? This blog by Brookings’ Ryan Donohue and Brad McDearman provides both examples and practical strategies for addressing the opportunities and risks for regions in dealing with M&A.