Valuation expectations between Europe and the USA: A cross-border M&A perspective
We are experts in crossborder transactions from Europe into the USA and have seen firsthand the different valuation expectations that exist between the two continents.
American companies tend to be valued at higher multiples than European companies. That´s a fact! This is due to a number of factors, including:
- Higher growth expectations: American companies are generally expected to grow faster than European companies. This is because the US economy is more dynamic and innovative.
- More favorable tax environment: The US has a more favorable tax environment for businesses than Europe. This makes US companies more profitable and therefore more attractive to investors.
- Greater liquidity in the US stock market: The US stock market is more liquid than the European stock market. This means that it is easier to buy and sell US shares, which makes them more attractive to investors.
However, there are a number of factors that can lead to European companies being valued at higher multiples than American companies, such as:
- Stronger track record of profitability: European companies often have a stronger track record of profitability than American companies. This is because European companies tend to be more conservative in their management approach.
- More mature markets: European companies often operate in more mature markets than American companies. This can lead to more predictable and stable earnings growth.
- Lower cost of capital: European companies often have a lower cost of capital than American companies. This is because the European Central Bank has historically kept interest rates lower than the US Federal Reserve.
In general, however, American companies tend to be valued at higher multiples than European companies. This is one of the key challenges that European companies face when trying to acquire American companies.
Here are some tips for European companies that are considering acquiring American companies:
- Understand the different valuation expectations: Before you start any negotiations, it is important to understand the different valuation expectations that exist between Europe and the USA.
- Be prepared to pay a premium: If you are serious about acquiring an American company, you need to be prepared to pay a premium. American companies are generally valued at higher multiples than European companies.
- Highlight the strengths of your business: When you are negotiating with the American company, be sure to highlight the strengths of your business, such as your strong track record of profitability, your conservative management approach, and your lower cost of capital.
- Get creative with your financing: There are a number of creative ways to finance the acquisition of an American company. You may want to consider using a combination of debt, equity, and earn-outs.