*EPF311 06/07/00
Text: Foreigners' Purchases of U.S. Firms Jumped Again in 1999
(BEA says mergers/acquisitions account for rise) (1430)
Foreign investors' purchases of U.S. businesses jumped again in 1999, rising 31 percent over the previous year to reach $282,946 million, according to preliminary estimates released June 7 by the U.S. Department of Commerce's Bureau of Economic Analysis (BEA).
The 1999 rise came after a tripling of foreign investor purchases in 1998, when the total spending reached $215,256 million. The "exceptionally high outlays" in 1998 and 1999 "reflect a worldwide boom in merger and acquisition activity, the continuing strength of the U.S. economy and the increasing number and size of large investments," a BEA press release said.
In both years, investments involving spending of $2,000 million or more accounted for over 65 percent of total outlays, the BEA release said. In the past, "investment of this size have never accounted for more than 30 percent of total outlays," it said.
Some of the largest investments in 1999 involved telecommunications services, Internet-based information services and the manufacture of fiber optic, Internet and other communications equipment, the release said. British firms accounted for $110,115 million of the purchases, by far the largest amount of any single country. All European firms combined accounted for $205,150 million of the purchases. After the United Kingdom, Bermuda accounted for the second largest amount of purchases, $31,700 million of the total $34,013 million in the category for "Latin America and Other Western Hemisphere," according to BEA.
Following is the text of the BEA release on the report:
(Note: In the following text "billion" equals 1,000 million.)
(begin text)
Foreign Investors' Spending to Acquire or Establish U.S. Businesses Increased Sharply to $283 Billion in 1999
Foreign investors' spending to acquire or establish U.S. businesses increased 31 percent to a record $282.9 billion in 1999 after tripling to $215.3 billion in 1998, according to preliminary estimates by the Commerce Department's Bureau of Economic Analysis. Prior to 1998, foreign investors' spending for new U.S. investments, which includes both outlays made directly by foreign investors and outlays made through their existing U.S. affiliates, never exceeded $80.0 billion.
The exceptionally high outlays in the last 2 years reflect a worldwide boom in merger and acquisition activity, the continuing strength of the U.S. economy, and the increasing number and size of large investments. In both years, investments involving outlays of $2 billion or more accounted for over 65 percent of total outlays. In contrast, in the previous 6 years, investments of this size had never accounted for more than 30 percent of total outlays.
The increases in both 1998 and 1999 partly reflected sharp increases in investments by British investors, whose outlays in both years (as in most recent years) were larger than those of any other country.
Some of the largest investments in 1999 were the acquisitions of companies in communications-related industries, where deregulation and rapid technological change have spurred growth and provided incentives for business combinations. In 1999, foreign firms acquired several major U.S. companies that were involved in telecommunications services, Internet-based information services, and the manufacturing of fiber optic, Internet, and other communications equipment.
In 1999, as in 1998, several of the largest acquisitions involved exchanges of stock. In these exchanges, the shareholders in the acquired U.S. companies received stock in the foreign parent companies as partial or total payment for the acquisitions.
BY TYPE OF INVESTMENT AND TYPE OF INVESTOR
Outlays to acquire existing U.S. companies, rather than to establish new U.S. companies, accounted for $276.5 billion, or 98 percent of total outlays in 1999, well above the 82-percent average for the preceding 5 years. Over half of the outlays were made by existing U.S. affiliates ($154.3 billion) rather than by foreign direct investors themselves ($128.6 billion); however some of the outlays by existing affiliates were financed with funds provided to them by their foreign parents.
BY SOURCE OF FUNDING
Outlays financed by funds supplied by new or existing foreign parents, rather than by existing U.S. affiliates, increased to $226.9 billion in 1999 from $159.4 billion in 1998. These outlays are part of overall capital inflows for foreign direct investment in the United States (FDIUS) as recorded in the financial account of the U.S. international transactions accounts, and they contributed to an increase in FDIUS capital inflows to $282.5 billion in 1999 from $193.4 billion in 1998. (In addition to outlays from foreign parents to acquire or establish new U.S. affiliates, capital inflows for FDIUS include foreign parents' financing of their existing U.S. affiliates. The estimates of capital inflows for FDIUS are preliminary.)
BY INDUSTRY AND BY AREA AND COUNTRY
By industry, outlays increased sharply in information, particularly in telecommunications, in finance (except depository institutions) and insurance, and in depository institutions. Outlays decreased sharply in manufacturing, primarily because total outlays for 1998 included exceptionally large investments in petroleum and coal products manufacturing and in motor vehicle manufacturing. Within manufacturing, outlays in 1999 were substantial in computers and electronic products, particularly in semiconductors and other electronic components, and in communications equipment. (See note on new industry classifications.)
By country of ultimate beneficial owner (UBO), investors in Europe -- mainly the United Kingdom and France -- accounted for most of the increase in outlays in 1999; European investors accounted for more than 70 percent of total outlays in both years. Outlays by investors in "Latin America and Other Western Hemisphere" -- mainly Bermuda -- and in "Asia and Pacific" -- mainly Japan -- also increased in 1999, but the share of these areas in total outlays was comparatively small -- 12 percent and 4 percent, respectively.
SELECTED OPERATING DATA
U.S. businesses that were newly acquired or established by foreign investors in 1999 had total assets of $454.4 billion, compared with $274.3 billion for those acquired or established in 1998. They employed 648,000 people, up from 625,000.
The 1998 estimate of total outlays has been revised up 7 percent from the preliminary estimate published last year.
Estimates in this report are based upon a Bureau of Economic Analysis survey that covers (1) existing U.S. business enterprises in which foreign investors acquired, either directly or through their U.S. affiliates, at least a 10-percent ownership interest and (2) new U.S. business enterprises established by foreign investors or their U.S. affiliates, also using the 10-percent ownership interest threshold. The 1998 and 1999 estimates cover all newly acquired or established business enterprises. Estimates for years prior to 1998 cover newly acquired or established business enterprises with total assets of over $1 million or ownership of at least 81 hectares (200 acres) of U.S. land. Values for the small investments that were not covered prior to 1998 were negligible and the estimates for 1998 and 1999 are therefore comparable with those for the earlier years.
Additional details on the new investments by foreign investors in 1999 will appear in the June issue of the Survey of Current Business, the monthly journal of the Bureau of Economic Analysis. The preliminary estimates for capital inflows for foreign direct investment in the United States were published in Christopher L. Bach, "U.S. International Transactions:, Fourth Quarter and Year 1999," Survey 80 (April 2000): 146-192. Revised estimates will be released on June 20 and published in greater detail in the July issue of the Survey.
NOTE ON NEW INDUSTRY CLASSIFICATIONS
The 1998 and 1999 estimates by industry reflect two changes in industry classification. First, the estimates are based on classifications derived from the new North American Industry Classification System (NAICS); the estimates for the preceding years are based on classifications derived from the Standard Industrial Classification (SIC) system. Second, petroleum is no longer treated as a separate major industry; instead, the various petroleum-related activities are distributed among the major NAICS industry groups to which they belong.
The BEA press release on Foreign Investors' Spending, including tables, can be found on the Interest at: http://www.bea.doc.gov/bea/newsrel/fdi99.htm
The following table is adapted from Table 4 in the release:
Investment Outlays by Country of Ultimate Beneficial Owner: 1997-99
(Millions of dollars)
1997 1998 /r/ 1999 /p/
All countries 69,708 215,256 282,946
Canada 11,755 22,635 11,388
Europe 44,014 170,173 205,150
France 2,578 14,493 24,579
Germany 6,464 39,873 24,393
Netherlands 10,244 19,009 26,896
Switzerland 6,745 4,525 7,119
United Kingdom 11,834 84,995 110,115
Other Europe 6,149 7,278 12,048
Latin America and
Other Western Hemisphere 924 11,354 34,013
Asia and Pacific 11,786 7,329 11,502
Japan 2,326 4,862 8,048
Notes:
p Preliminary.
r Revised.
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(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)
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