How can trading internationally improve the exit value of your business?
It comes as no surprise that a large majority of UK businesses listed on the FTSE 250 trade internationally, showing that ‘going global’ can add huge value to your business.
However, Britain has the unenviable reputation of being one of the leading global nations that has a negative balance of payments when it comes to international trade, importing more than it exports.
Currently, Britain ranks as the 10th highest export nation, shipping £636bn worth of products and services around the world – but as the world’s first highest import nation, we ship in a staggering £470bn worth of items.
To counter this there has been a huge drive by government to get more firms exporting.
Many high-growth companies will be ideal candidates to trade internationally, but how does expanding your international footprint really add value when it comes to company reputation, positioning to float and packaging for sale?
Becoming an attractive acquisition
Rob Crews is Partner at Momentum Corporate Finance LLP and an experienced transatlantic dealmaker.
He says that for a business to become an attractive purchase option, exporting is one of many options to increase the value of the company.
Rob Crews, Partner at Momentum Corporate Finance LLP explains: “A business that is trading abroad can become an attractive proposition to a potential purchaser. This is because international trading does generate some interesting strengths to consider when looking at an acquisition.
“Overall, regardless of the industry in which the business operates, if it trades abroad then it has access to a wider, global market. This will make it more attractive than a similar business constrained to the UK alone.”
However, global growth is a huge commitment that can sometimes make or break a business.
With a profusion of potential pitfalls awaiting British companies looking to expand overseas, businesses must be aware of who they are doing business with.
Mark Sevier, Head of Research at Alpha Portfolio Management explains: “Overseas expansion can improve a company’s growth prospects, particularly during periods of lower growth in their domestic market.
“However, trading internationally presents both opportunities and risks. It offers more diversified revenues and reduces sensitivity to any individual economy. It also opens a company up to different regulatory and political environments.”
Increasing your business value
Despite the contrasting opportunities and risks that international trade provides, those that are successful can exponentially increase the value of their business.
International business growth comes with many new markets, but also its own set of challenges. An obvious advantage of succeeding as a business internationally, is that it puts a business’s value on a much higher level.
One of the main reasons for exploring new markets is also to increase the rate of growth. If a successful domestic business can replicate itself abroad and add diversification to its portfolio, then it can establish itself as a global brand.
Rob comments: “Exporting to overseas markets reduces reliance on the UK. A business that sells into multiple markets is less exposed to a negative shock in any single market. Lower levels of risk drive higher valuations.”
However, there are several risks businesses should be aware of before embarking on an overseas trade mission.
He continues: “When selling abroad, receipts will typically be in foreign currency, which creates more uncertainty. If Sterling strengthens, then these foreign currency receipts will be worth less in the UK.
“Conversely as Sterling weakens, which it has since the Brexit referendum, then foreign currency receipts are worth relatively more in Sterling. To the extent that costs can also be denominated in foreign currency, then this will create a natural hedge and help reduce the exchange rate volatility in earnings.”
The route to international growth is different for all companies. It can depend on the sector, the size of the company’s UK operation, and what products and services they offer.
One of the main challenges when growing a business, is building relationships with customers and suppliers. When a business plans to start buying and selling overseas, this process must start over again.
Therefore, buying your way to becoming a global business through acquisition can be an option.
Mark comments: “For companies considering entering a new market, M&A or a joint venture are options to provide a foothold and establish relationships, in addition to organic growth. In terms of valuation, investors are likely to apply a premium rating to internationally diversified businesses which can offer revenue and profit growth against a backdrop of varied economic conditions.
“As a consequence of Sterling falling to near 30-year lows against several other major currencies, imports to the UK have become more expensive. The flip side is that our exports have been made cheaper. This offers a real competitive advantage to any businesses producing goods and services in the UK which are considering expanding sales internationally.”
Is there still value in British business abroad?
With the current state of the economy, Brexit looming, and trade deals still being negotiated, there are many outside factors that could impact what value trading internationally adds to a business – but thinking long-term, opening up your business to global markets can only be a good thing.