KUHN CAPITAL Sunday, February 25, 2018
Dispatches from the front

America for Sale

An historic reversal in the flow of transnational M&A transactions is underway. What was mostly Americans buying overseas targets (supported in recent years by US PE firm activity) is now mostly foreigners buying US assets.

Thomson Financial data covering the last four quarters has non-US acquirors of US companies spending $323 billion versus US acquirors of non-US companies investing $240 billion.

US-US deals still dominate, accounting for two-thirds of the total $1.7 trillion spent on US-related transactions in the last 12 months. So non-US purchasers still only account for about 20% of all US-related transactions. But we think this can double in the next year or two.

Factors driving this change are:

  • The dollar’s continuing and deep weakness, making all things here a bargain;
  • EU courts that increasingly nix purchase proposals by American strategic buyers and punish their current EU operations under cover of anti-monopoly regulations. Whereas Microsoft was able to resist anti-trust attacks on its own home turf, today it is continuously bashed pillar-to-post by EU commissars;
  • Add to that EU hostility to American PE purchases, particularly in Germany where it is claimed that PE “locusts” strip assets, kill jobs and reap obscene profits;
  • Only glacially-paced reductions in the myriad Chinese obstacles to foreign ownership. Similarly, Japan’s protection of its hidebound industries in the face of American efficiency is so slowly eroding that ready access is years off.
  • The risks to any foreign investor of effective expropriation and racketeering in Putin’s Russia.
  • Recently, the rise of state-sponsored investment funds out of Russia, China and the petro-countries focused on acquiring assets in free-market countries.
  • The great pools of overseas wealth generated by America’s chronic trading deficits with energy and cheap goods exporters, again China and the petro-countries.

    Bottom line: we believe overseas protectionism and corruption are narrowing opportunities for American foreign investment while those same protectionist and corrupt countries are increasingly attracted to America’s comparatively cheap pricing, rule of law and open markets.

    The fact that some of these overseas buyers are controlled by governments means they can bring huge sums to the table, they are patient, and they will pay prices in the service of country agendas that could not otherwise be justified through return-on-investment criteria.

    What will be interesting is how American politicians react. This country’s long history of free trade leadership will be sorely tested when famous American brands and key strategic assets start falling into the hands of foreign state-controlled funds.

    Another question raised by the trend of foreign ownership in American assets is: after we've spent all our money on foreign goods, then sold our means of production, what does the US do for an encore?

    Ryan Kuhn

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