Monday, December 29, 2003

US Companies for Sale
With the US dollar in decline, a massive structural imbalance in trade and a huge Federal deficit, and the US economy highly dependent upon stimulation from lower interest rates, the US dollar can be expected to remain low. It has dropped since my first comments several months ago about the decline of the US dollar.

The US dollar has declined the most against the ECU with many Asian countries tying their values to the US dollar.

The inevitable conclusion is that the US is about to experience a surge in takeovers by European companies in the next year.

The reasons are simple. Any time a company become less expensive, new suitors emerge. For European companies, American companies now look weak and inexpensive. This acquisition activity occurred in the UK when the pound was weak, and in Canada when the Canadian dollar declined. The US is no different.

However, one difference about competing in the US is that foreign companies have a high rate of failure in the US. So buying a North American company requires North American expertise and a much better understanding of the pitfalls, opportunities and strategies for success in the highly competitive US market. Daimler-Benz's purchase of Chrysler, which has led so far to a major deterioriation in shareholder value shows how, at least in the short term, the US market can be treacherous. And recent research by McKinsey suggests that even if you have had successful acquisitions in the past, past success is no predictor of future success.

For the smaller or medium sized company, successful in their own small domestic market, the big surprise about the US is the brutality of competition in the US market. The reasons are fairly simple.

1. In general, larger markets support more niches. So, as a result, competitive analysis is far more important in the US than when making acquisitions in smaller markets. In smaller markets, there are typically fewer competitors and competitors are more generalist with more dominant market-share positions.

2. The US market is highly legalistic. Lobbying, regulatory approval, legal suits are typical weapons of warfare in the merger and acquisition game.

3. Barriers to entry in many US markets are very low. And in markets like high tech, capital access is very high, often negating first mover advantages. And the US has few barriers particularly at the low end of size ranges that protect small companies from international competitors.

4. The US market is very sophisticated. Information about companies and their performance is as much an attribute of the products and services they provide as the actual product/service itself. Marketing and public relations are key tools in establishing value.

5. With so many competitors in most US markets, being foreign owned is often a disadvantage. While there are companies that have thrived based upon their international reputations, the general trend in the US market is for foreign ownership to be considered a disadvantage.

6. Strategy is far more important in the US market than in the most of the home base markets for acquiring companies. In the US, there is typically a greater variety of business models and experimentation than in smaller markets.

So, if you are thinking about acquiring a US company, talk to us about your goals. Eclicktick Corporation can help steer you in the right directions. We can help to:

1. Identify target companies;
2. Evaluate target company strategies;
3. Assist in strategic growth assessment;
4. Help you work with local financial institutions;
5. Facilitate integrated strategies that take advantage of your own strategy and that of the purchased company.

For more information, please contact Alistair Davidson at +-1-415-225-8610 or e-mail at

Alistair Davidson

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