Transatlantic Transactions

Last updated: Feature

U.S. companies find attractive targets in the U.K., France, Germany and the Nordics

As U.S. corporations and private equity firms cast ever-widening geographic nets to find acquisition targets, Europe is proving to be a fertile spawning pool. The continent is teeming with middle-market companies that yearn to grow outside their home markets, and they're looking for investors from across the pond to help them.

A prime example is found in Reima Oy, a children's wear brand founded in 1944 in Vantaa, Finland. The company had long been known in Northern Europe for making high-quality outdoor clothing, which it sells under brands including Reima, Lassie and Tutta. But the company wanted to increase its presence in Russia and expand into further-flung cold-weather regions, including Beijing, which boasts a population well over 15 million. The company also lacked an e-commerce strategy, and the brands were in need of design updates.

Enter the Riverside Co. In 2011, the PE firm, which is headquartered in Cleveland and New York, bought Reima from its management team and from the Finnish PE firm Vaaka Partners. Since becoming a portfolio company of Riverside, Reima's sales have increased by 40 percent. Other milestones include four store openings in China, with many more planned soon. And the company now offers e-commerce services in Denmark, Finland, Germany, Norway, Russia and Sweden. Expansion into the U.S. and Canada is expected in 2014 or 2015.

Reima serves as just one of hundreds, if not thousands, of solid middle-market European companies poised for the next stage of growth, explains Thomas Blomqvist (pictured), a Riverside partner based in Stockholm.

"Europe has a culture of producing good products, but many middle-market companies have a problem gaining meaningful traction outside of their home markets," says Blomqvist. "They lack the bandwidth and the financial muscle to gain international traction. Globally-operating U.S. investors can take a European company to Asia, where the growth is."

The strategy is especially important in industries, such as branded consumer goods, which see a lot of potential in the growing middle classes of countries, such as China and also Russia, says Blomqvist.

Medicine Makers

Just as the consumer goods business is expanding internationally into new markets, so is the pharmaceuticals industry. The opportunities for M&A are many, especially in the rapidly consolidating sector of manufacturing drugs.

"The big pharma companies have been more cost-conscious, and they're getting a lot of pressure from various governments about manufacturing deficiencies and regulatory compliance at their facilities," says Paul Levy, founder of New York PE firm JLL Partners Inc. "These companies are focused on research and development rather than on manufacturing." So drug makers look to outsource the manufacturing.

A significant case in point: In a deal valued at $2.6 billion, JLL recently agreed to buy a majority stake in the pharmaceuticals business of Heerlen, Netherlands-based Royal DSM NV, creating a new company. The unit will be rolled into Patheon Inc., a Canadian specialty-pharmaceuticals manufacturer recently taken private by JLL.

The new entity is projected to have 2014 sales of about $2 billion and manufacturing facilities in 11 countries: Australia, Austria, Canada, France, Germany, Italy, Japan, Mexico, Netherlands, U.K. and U.S.

Proximity to customers helps. "Our Italian facilities will more likely be servicing customers in Europe rather than in America," explains Levy.

More M&A in drug manufacturing is likely. "We'll be the largest participant in the industry, but even with DSM, our market share is no more than 10 percent," reports Levy. "This is a highly-fragmented industry."

As the second-smallest but third-most-populated continent, Europe is likely to play a role.

Tech Talent

Another sector benefitting from U.S.-European transactions is technology, media and telecommunications. For example, Microsoft Corp. (Nasdaq: MSFT) recently announced that it would buy Espoo, Finland-based Nokia Corp.'s devices and services business. The transaction is expected to close in 2014.

It's not the first time the Redmond, Wash.-based software giant has turned to Europe for targets. Another well-known example is Microsoft's 2011 acquisition of Internet communications provider Skype Global SA, based in Luxembourg, from an investor group led by PE firm Silver Lake of Menlo Park, Calif., for $8.5 billion in cash.