In today's post, I want to share my experiences and understanding of how buying and selling businesses operates in Europe, the UK, and the U.S. During my recent three-week stay in New York, I met with over 25 brokers, bankers, and investor teams. This experience allowed me to see significant differences in the investment and M&A processes across these regions.
Observations on the Investment Landscape
Throughout my career in consulting and investment banking, I have encountered various aspects of business transactions. However, the most intriguing insights emerged from our work at RIO CODE. In recent years, we have been helping clients acquire businesses primarily in the EU and the UK for capital reinvestment.
I noticed that wealth often flows into brokerage accounts and real estate. Many investors prefer more stable investment formats, such as shares in hotels or student accommodations. Yet, the most interesting challenges arise when purchasing active businesses.
Challenges of Acquiring Active Businesses
When discussing the complexities of acquiring businesses, it’s essential to highlight the significant differences between Europe and the U.S. In certain respects, Europe may lag behind; however, many trends from the U.S. typically find their way to Europe within 3-5 years.
In Europe, many businesses operate on a family-run model. Customers are treated like family, creating a network of trust between the owner, suppliers, and clients. This model presents substantial challenges when attempting to purchase such companies. If a potential buyer wants to acquire a company whose customer base is closely tied to its founder, the risk of losing that base is high.
Difficulties of Family Businesses
Selling a family business can be a complex decision. Many families prefer to pass their business down through generations rather than selling. Even when a business is put up for sale, it may have its complications. Potential buyers often face illiquid assets or companies that are not as reliable as they might appear.
Conducting due diligence in Europe can be time-consuming and challenging. Assessing the viability of a business without its founder is a critical task. One success story I frequently mention involves the acquisition of a yacht servicing company on the French Riviera. This business catered to wealthy expatriates, primarily affluent individuals owning large yachts.
Unique Aspects of Yacht Servicing Businesses
When clients purchase yachts, they typically enter into service contracts. Long-term contracts are attractive, allowing buyers to focus on overall value rather than operational aspects. Most clients are less concerned about who services their yacht; efficiency is paramount.
I've spoken with individuals who have purchased yachts ranging from $10 million to $100 million, and they express little concern about the service details. Their primary focus is ensuring the yacht operates smoothly, making this a profitable venture for the servicing company.
Challenges in Broader Markets
However, challenges arise when trying to acquire businesses outside the expatriate sector, such as in Bordeaux or Biarritz. While these regions offer more opportunities, they also come with numerous complexities. Many projects I encounter are what I refer to as "boring projects," such as hotel acquisitions.
Investing in hotels often involves various hidden pitfalls, including fluctuating profitability and operational issues. Therefore, this path is not always the optimal investment strategy. Understanding the local market and building a reliable network can help mitigate some risks, but investing in individual hotels remains a significant endeavor.
As we continue to explore these topics, staying informed about the diverse challenges and opportunities arising from buying and selling businesses across different regions is crucial.
Differences in Approaches to Business Acquisition in Europe and the U.S.
In the previous section, we discussed the characteristics of the European and UK markets concerning business acquisitions. Now, let's delve deeper into how these processes differ in the United States.
Specifics of British Business
In Britain, acquiring a business often aligns with different goals. There is a substantial concentration of capital, and businesses are purchased not only for profitability but also for reputation and asset protection. This makes the British market unique, with a focus on status, connections, and legitimacy, often more critical than mere financial returns.
For instance, when selling a business in the UK, emphasis is often placed on its reputation rather than its net income. This is particularly evident in education, where buying a stake in a private school can be justified both from a profitability standpoint and for building image and trust.
The American Market: A World of Opportunities
In contrast to Britain and Europe, the U.S. exhibits an entirely different dynamic. Numerous platforms for buying and selling businesses make the process more accessible and transparent. Unlike Europe and Britain, which have only a few platforms, the U.S. has hundreds featuring carefully vetted business opportunities.
Platforms and Systems
In the U.S., popular platforms like "Experience Ovation" provide entrepreneurs and investors with opportunities to discover interesting investment projects. On these platforms, buyers can easily find companies with ready-to-sell assets, significantly simplifying the process for potential purchasers.
Moreover, many companies here create management structures that help optimize costs and establish long-term contracts with clients. This leads to a more sustainable business model, where the company continues to function smoothly after a change in ownership.
Deal Support Systems
An essential aspect of business acquisition in the U.S. is the presence of professional brokers who facilitate transactions. Brokers play a key role by assisting buyers in interacting with businesses and understanding the nuances of each case. Instead of communicating with owners who may leave the business, buyers work with brokers, making the process more efficient.
There are also independent services providing evaluations and analyses that are not dependent on brokers or platforms. This allows buyers to obtain objective information, ensuring they make informed decisions.
Large-Scale Projects and Investment Funds
The American market is also characterized by a preference for large-scale projects. Many funds and investment groups focus on companies generating revenues of $100 million and above. This creates an ecosystem where businesses are actively acquired, merged, and prepared for IPOs, fostering company growth and increasing market share.
Consequently, unlike Europe, where there exists a so-called "valley of death" for small businesses, the U.S. offers a clear structure and support at every stage of a company's development. This makes investing in small and medium-sized enterprises more appealing and less risky.
Convenience and Transparency
The purchase of businesses in the U.S. has become more convenient due to the multitude of tools and platforms available. The buying and selling processes are supported by teams of specialists, allowing businesses to remain competitive and growth-oriented. Potential investors can clearly understand which parameters to consider and how to optimize processes for future successful sales.
These differences between European and American markets underscore the importance of an approach to buying and selling businesses that is dependent on local conditions and cultural nuances.
Tools and Resources for Businesses in the U.S.
The U.S. market offers a plethora of resources and tools for those considering business acquisitions. One of the key advantages is the ability to evaluate all costs associated with a transaction upfront. This includes transaction fees and other hidden expenses, allowing for better financial planning.
Accessibility and Convenience of Platforms
There are specialized platforms for buying and selling businesses, each with its own focus and target audience. This enables buyers and sellers to align more closely with their interests and needs. Each platform has brokers specializing in specific niches, making the purchasing process more targeted and effective.
As a result of this diverse ecosystem, entrepreneurs can choose from various options and tailor their strategies to the unique market demands. This is akin to a builder’s workshop, where each piece fits perfectly.
Immersion in the Market
To better understand these platforms and processes, I’ve been exploring various services and working with individuals who have already used them. Creating podcasts that discuss these topics has become a vital step for exchanging experiences and knowledge. This allows us to grasp how systems operate and the opportunities they offer.
As many observers have noted, America provides a chance for deep immersion in the business environment that is often inaccessible in Europe. Unlike the more limited and predictable European market, the U.S. exhibits dynamics that demand a high level of engagement and risk readiness from entrepreneurs.
American Entrepreneurial Culture
The entrepreneurial culture in the U.S. creates extensive opportunities but also places high demands on business owners. Competition is fierce, and achieving success necessitates persistence and a readiness for constant challenges. This aspect highlights the importance of early education in competition, especially for youth starting their business journeys.
Education in the U.S., with its focus on developing competitive skills and entrepreneurial thinking, becomes an attractive option for new generations. Consequently, many parents consider the possibility of educating their children in such environments, potentially opening new horizons for them.
Future Directions and Development
According to observations, many companies in the U.S. lag in automating business processes, providing ample opportunities for implementing new technologies. This creates a space for optimization and innovation that can significantly enhance business efficiency.
Researching the American market and its characteristics will be a key focus for future podcasts and content. Entrepreneurs will have opportunities to learn more about tax aspects and other important topics related to doing business in the U.S.
In conclusion, studying and analyzing the American business landscape opens new horizons for entrepreneurs striving for success and growth in a competitive environment.
The "Taxes and Investments" Club: Future Opportunities
In our "Taxes and Investments" club, we plan to hold several meetings from June 24 to 27. These sessions will serve as the final gatherings before our summer break, after which a closed Q&A session is scheduled for July 1. Starting in September, the club will resume in a new format that is more systematic and in-depth.
Feedback and Development
The club organizers are open to suggestions and comments from participants, enabling us to adapt the meeting format to community needs. Club members can share their thoughts on how to improve the program and make it more beneficial.
Additionally, the organizer invites opportunities for personal meetings with club participants. Upcoming months will include trips to New York, Washington, and Boston—three financial centers, each with its unique specialization: Boston focusing on deep tech and biotech, Washington on military budgets and healthcare, and New
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