Interview question international growth
Had an interview for a fund a few weeks back and want to check something. The question was (why) would you want to drive internationalisation for a single country company if the local market is big enough for the next X years, no problems with customer concentration etc. and you actually realize lower revenue and profit if you expand internationally.
Answer to the question was because you can drive a higher multiple in international businesses than local businesses because it'll lead to a more competitive auction. I get the theoretical point but is this actually true / do I look crazy if I bring it up as a value creation lever in interviews with other funds? I couldn't find much online and first time I had heard of it being used - was under the impression from deals I've been on that even very local deals have >10 funds bidding at the same time... or maybe those were an exception
I'll share my thoughts:
I work in Asia, where different markets trade at very different multiples. We were running a restaurant business, which had been acquired at around 9-10x EBITDA in its home country, which was more or less in line with comps. We looked at acquiring a business / expanding into India, where restaurants trade at 13-15x EBITDA, with the idea being that if we could get revenue / EBITDA contribution from India up to a meaningful level (30%+), then we could sell the entire business to a buyer in India or take it public there, thereby realizing substantial multiple expansion on the 9-10x business we had purchased originally. This idea was ultimately abandoned for other reasons, but it was a very serious conversation.
I'm not sure if it necessarily adds more buyers / potential buyers by doing this and in fact would argue the contrary. A lot of funds have a specific mandate in terms of region, so for example a SE Asia fund might not be able to invest in a business with 30% India revenues, and a domestic India fund might not be able to invest in a business with 70% international revenues. Most funds are focused on the "domestic consumption" story, so I think this could limit your buyer universe vs. expanding it.