As mentioned in last month’s article, we have seen an increase in interest for our seller clients wanting to sell to buyers based outside the USA. We reviewed the characteristics and types of companies foreign buyers would like to acquire in the USA. In this month’s article, we discuss The Challenges of Selling to Buyers Outside the USA.
Over the past several years, we at CFA have been very active closing numerous cross-border deals; including assisting Warren Buffett and Berkshire Hathaway complete their first transaction in Europe. “Closing a deal with a buyer or seller in your own country is difficult enough,” said Armand-Louis Weisheimer, Chairman of the International Corporate Finance Group (of which CFA is a founding member), “but getting a deal done with a buyer or seller from a foreign country who speaks a different language and lives seven time zones away is even more challenging.”
What are the biggest challenges of selling your business to a buyer outside of the USA? The following, non-inclusive list of challenges is based upon our experience working with buyers and sellers on cross-border transactions:
- Cultural Differences: Just because it “plays in Peoria” does not mean it “plays in Paris or Prague.” The way we conduct business in the USA is much different than other countries. Many people outside the USA think Americans work too many hours and talk about business too much. A typical business lunch with Europeans involves little discussion of business and usually includes a bottle of wine…or two. Even table manners are quite different—at a lunch meeting with buyers from Europe, our seller clients in the USA were amused as they watched the Europeans eating pizza and tacos with knife & fork.
- Negotiating Styles: When it comes to negotiations, Americans tend to say, “Let’s split the difference,” in order to quickly resolve differences. However, negotiations with parties outside the USA do not always move swiftly or easily. When we work on cross-border deals, the party outside the USA has never once said to us, “We will agree to split the difference.” As one buyer in Germany told me, “You Americans forget your country is very young and moves very fast. We in Europe have been doing this longer and are much more patient.” When working with a buyer outside the USA, you must be prepared to be very, very patient.
- Language Differences: We Americans are spoiled. English has become the language of the business world. We assume everyone around the table speaks English. While many/most business people outside the USA speak English, they do not always understand American English nor are they conversant with most American colloquialisms. In a recent negotiation with our European buyer-client and an American seller, the seller’s attorney said of our offer, “That dog don’t hunt!” You can only imagine baffled stares on our clients’ faces as they asked me to translate. Never assume those around you completely understand what you are saying when English is not their first language. Even simply financial terms are different outside North America—what we call “sales” or “revenues” the rest of the world calls “turnover.”
- Human Resources: Buyers from outside the USA are pleasantly surprised by our employment laws and practices; there is no such thing as “at will employment” in Europe. At the same time, foreign buyers are terrified of our “litigation-happy” society and blanch at our maze of regulatory requirements regarding employment. Buyers outside the US can not believe how little vacation time is offered to American employees; 4 weeks annual vacation time plus 15 federal holidays per year is the approximate standard in countries outside the USA.
- Accounting Differences: Buyers from outside the USA, especially those in Europe, are dumbstruck by the level of personal expenses many US business owners charge to their businesses. “Charging personal expenses, even if business related, to your company is simply not done in Europe,” said Weisheimer. “Auditors in the various countries search for these things. For example, in France, we are not allowed to turn in expenses for business meetings held on a Sunday because we are prohibited by law from conducting business on Sunday.” Furthermore, buyers outside the USA are often confused by the complexity of federal, state, county, and municipal tax laws, as well as the challenge of dealing with multiple states each with their own, often conflicting, tax regulations. As one buyer from India said to us, “We never realized the USA was made up of 50 different ‘countries’ each with their own taxing authority and regulations.”
The challenges to getting a cross-border deal are myriad and include more than this list. However, despite the strength of the US dollar vis-à-vis other currencies, with the globalization of business, the overall strength/stability of the US economy, and the size of the US market, buyers from outside the USA continue to look to make acquisitions in America. If you are considering a sale to a foreign buyer, remember to mind your manners and be cognizant of the customs of others from different cultures.
I am happy to answer any of your questions regarding this subject or any previous articles. In my next article, I’ll discuss the subject: Is Now the Time to Sell?
