When you’re selling your business, the world – and not just the U.S.A. — can be your oyster. As technology and globalization continue making the world smaller and foreign economies expand and look abroad for growth, international buying power expands domestically in the USA, which provides more foreign buyers the opportunity to acquire U.S.-based business to expand their distribution, gain expertise, and acquire new technology.
If you’re interested in attracting and negotiating a successful sale with a foreign buyer, there are many considerations, which cut across legal, regulatory and cultural categories. Any of these alone can derail a successful sale. To keep the sale on track, you may find that you’ll need to perform more extensive due diligence on your own business in terms of preparing for an independent evaluation, inventorying your assets and reassuring employees to prevent ill-timed defections.
Common considerations that impact the purchase of a U.S. company by a foreign buyer include:
Visa: Visa issues are a common issue that can derail or delay a sale to a foreign buyer. There are several Visa programs that foreign buyers can qualify under to acquire a U.S. business and stay and work in the U.S., including:
- The E-2 Visa, which allows foreigners who make a substantial investment in a business that is a valid going concern to stay in America to direct and manage the investment. It’s a long-term, temporary visa.
- The EB-5 Visa or the Employment Creation Visa requires a larger investment than the E-2 Visa, but offers a permanent residency visa.
Cultural: Cultural issues can prolong the sales process or derail it altogether. Cross border mergers and acquisitions have a 70 percent failure rate, according to Communicaid, a cultural and communication skills consulting firm based in London. U.S. business owners who successfully complete sales to foreign buyers make an extra effort to communicate, understand the culture of their potential buyers and be patient.
Language: Even if your buyer speaks English well, there will likely be unfamiliar terms and concepts. Misunderstandings can quickly arise around issues that might not even raise an eyebrow with a U.S.-based buyer. Cultural issues, which can be complicated further by legal and regulatory requirements, may prolong the time frame of every part of the sales process, so be as flexible as possible during the negotiation and when setting closing dates.
Regulatory: Regulatory issues can be complicated, so when you add the issue of the buyer’s country of origin, you could be stuck in a bureaucratic maze for months. The pros and cons of different types of business acquisition may be different overseas, and buyers may have to be educated about those differences. For example, in India, higher taxes are imposed on asset purchases, so stock purchases are more common there.
Accounting: Accounting standards are different in other countries, because the rest of the world uses International Financial Reporting Standards (IFRS) while the U.S. still uses Generally Accepted Accounting Principles (GAAP). Your accountants and attorneys must be well-versed in the issues involved in a foreign sale and prepared to work closely with foreign counterparts. You may need to recruit specialized consultants if securities, environmental, and labor regulations and laws apply to your business.
Lastly, while in a domestic sale you can rely on the buyer to do the necessary due diligence to move the sale along, that’s not always the case with a foreign buyer. Consider compiling and sharing a full inventory of business assets and preparing your employees for the upcoming change by educating them about the buyer and the buyer’s business culture. You may also want to hire an independent business valuator who can establish the fair market value of your business and it’s assets.