At TradeUp, our investment thesis is built on the consistent research finding that globalizing companies outperform the broader market. Now Boston Consulting Group (BCG) has produced evidence that private equity funds with portfolio companies with increasingly popular buy-and-build strategies (in which a PE firm buys a company and then build on this platform through add-on acquisitions) with cross-border acquisitions outperform buy-and-build strategies that are purely domestic and strategies that do not include buy-and-build.
BCG reports that in a sample of 121 companies, international acquisitions generated an average IRR of 38.2%, compared with 27.3% for domestic acquisitions and 23.1% for standalones. The international expansion of a formerly domestic company is hypothesized to unlock opportunities for cross-selling, generate larger scale economies, and catalyze further expansions, especially if the business improvements raise investors’ expectations of results that have yet to be reflected in financial performance.
Our take: not only do globalizing companies outperform purely domestic companies; cross-border transactions outperform domestic transactions. Leveraging the global marketplace for business growth works.