The US is highly attractive to foreign investors and investment funds seeking to secure opportunities via US domestic private equity funds. As the world’s largest national economy, the US provides a myriad of opportunities for foreign investors to secure substantial profit via exposure to the US market. Indeed, foreign investments made in the United States total almost $2.4 trillion, which is more than twice that of any other country.
According to an article in the International Financial Law Review (IFLR): “Investments may be made in a broad range of businesses eg mature, start-up, industrial, financial, technological, biochemical, are typically held for the medium to long-term, and often include some management rights, and may or may not include control investments. Foreign investors include groups ranging from foreign pension funds, insurance companies, charities and foundations, to individuals, governmental entities and perhaps other private equity funds.”
Importantly, foreign investors can invest from overseas via overseas corporate entities established to support highly attractive tax treatment on those investments into US private equity funds. Their share of income from those entities is considered dividend income, and thus they are not subject to US tax (although they will be subject to tax in their home country on any dividends received), making the United States a tax haven of sorts for foreign private equity capital, according to the IFLR.
Where US investment opportunities exist
Many often think of large publicly traded companies as perhaps comprising the bulk of foreign direct investment into the United States, however they are not. According to the Middle Market Center, in a study entitled The Market that Moves America, the middle market economy is one of the most important drivers of America’s economy, compromising companies with annual revenue in excess of $10 Million Dollars and less than $1 Billion dollars. Indeed, if the Middle Market were a country, its GDP would rank it as the fourth-largest economy in the world — just behind Japan but ahead of Germany.
The Middle Market comprises publicly traded, privately owned, and family-owned companies, partnerships, sole proprietorships, companies transitioning through the Middle Market, and emerging growth businesses transitioning from small or start-ups to bigger businesses. They employ 41 million workers, representing a full 34% of total U.S. private employment. 27% of all large companies in 2010 were still Middle Market firms in 2005 — and this dramatic growth occurred while the U.S. economy shrank during the same period. Research cited by the Middle Market Center indicates there is a resilience associated with Middle Market firms by virtue of their size, diversity and responsiveness. Further, a large number of public Middle Market companies are tapping into the capital markets, and now account for 59% of all businesses raising financing through that channel.
Therefore, the majority of US companies now seeking investment are in the middle market. This is a significant opportunity for both overseas investors including individuals as well as funds, and the advisors in the US and overseas that help them secure those investments. The primary trade association comprised of Middle Market Advisors in the United States is the Association for Corporate Growth.
Prospects for the future
The New York Times reported earlier this year that “U.S. chief financial officers (CFOs) of middle-market companies have grown more positive about the state of their industries and businesses as well as the state of the domestic economy over the last six months. 94% expect the U.S. economy will grow or remain stable in 2012, up 14 points from the previous survey, with 23% shifting to a growth outlook.” The article cites Dan Henson, president and CEO of GE Capital, Americas: “Mid-market CFOs are more optimistic despite the European fiscal crisis and inconsistent job growth. A larger majority sees top-line growth and stable or better profits this year, and more will be hiring. These companies have access to affordable capital, which in 2012 is most likely to be targeted for investment to finance growth and to purchase equipment.”
What US advisors can do
US private equity funds, corporate law firms, accountants and other advisors to the US middle market investor community, can develop robust business development initiatives aimed at securing greater interest among overseas investors. A digital, more globalized economy is making reaching those investors easier. Social media engagement including blogging about opportunities that exist for your ideal overseas investor groups and individuals, customized deal origination efforts, as well as robust international referral relationship cultivation among like-minded advisors – will all go a long way to expand the number of investors interested in working with you to secure opportunities in the US. These efforts, over time, can and will result in helping make your organization a “go-to” advisor for overseas investors, if designed and implemented effectively.
The US provides both ample investment opportunities as well as very favorable tax treatment for those prepared to work with the right advisors to properly enter the market, assess investment opportunities, and nurture those investments to fruition. Advisors in both the US and overseas should now be seeking to actively engage prospective investors with state-of-the-art social media, deal origination and referral relationship initiatives.