FOR WIRE TRANSMISSION: 10:00 A.M. EDT, WEDNESDAY, JUNE 9, 1999 Mahnaz Fahim-Nader: (202) 606-9828 BEA 99-17 Foreign Investors' Spending to Acquire or Establish U.S. Businesses Tops $200 Billion for First Time in 1998 Foreign investors' spending to acquire or establish U.S. businesses surged to a record $201.0 billion in 1998 from $69.7 billion in 1997, according to estimates by the Commerce Department's Bureau of Economic Analysis. This spending, which includes both outlays made directly by foreign investors and outlays made through their existing U.S. affiliates, almost tripled in 1998, following a decrease of 13 percent in 1997 and an increase of 40 percent in 1996. Estimates for 1998 are preliminary; estimates for 1997 are revised. The 1998 outlays were boosted by two exceptionally large acquisitions. However, even without these two investments, outlays still would have been about 40 percent higher than the previous record of $79.9 billion set in 1996. The two exceptionally large investments were in petroleum and motor vehicle manufacturing (included in "other manufacturing" in table 4) businesses and both reflect trends towards greater global consolidation in their industries. Many of the other investments were in telecommunication- and information-related businesses and reflect a desire by foreign investors to gain access to the advanced and growing technological capability in the United States, to integrate operations vertically, and to enter new markets. The surge in investments by foreign direct investors coincides with a sharp increase in overall merger and acquisition activity in the United States. Highlights of the 1998 outlays were: Size of investments: The substantially higher level of outlays in 1998 partly reflects an increase in the number of very large investments. There were 12 investments of $2 billion or more, and these investments accounted for almost two-thirds of total outlays. The number of such investments was up from 3 in 1997 and 8 in 1996. To some extent, the increase in the number of large investments in 1998 reflects the sharp increases in U.S. stock prices in recent years, which have raised the size of the outlays needed to acquire individual U.S. companies. Type of financing: Several of the largest investments, including the two exceptionally large acquisitions mentioned above, were accomplished by exchanging stock, a technique that is commonly used for financing mergers and acquisitions both in the United States and abroad. Taken together, these exchanges resulted in large, but almost entirely offsetting, capital flows in the U.S. balance of payments: The large inflows of capital that resulted from the foreign direct investors' acquisitions of stock in the acquired U.S. companies were offset by the outflows of capital that resulted from the distributions to U.S. stockholders of the stock in the foreign parent companies. Sources of financing: The portion of outlays financed by foreign parents (including those by exchanging stock) increased from 54 percent in 1997 to a record 77 percent in 1998. The unusually high share in 1998 mainly resulted from the two exceptionally large investments. Excluding these investments, the share would have been 59 percent. In dollars, outlays financed by foreign parents increased to $155.3 billion in 1998 from $37.4 billion in 1997. The increase contributed to the sharp overall increase in net capital inflows for foreign direct investment in the United States (FDIUS) recorded in the U.S. balance of payments accounts for 1998. In addition to outlays from foreign parents to acquire or establish new U.S. affiliates, net capital inflows for FDIUS include foreign parents' financing of their existing U.S. affiliates. According to preliminary estimates, net capital inflows for FDIUS increased $102.8 billion, to $196.2 billion, in 1998. (Revised estimates will be released on June 17.) As in past years, outlays to acquire existing U.S. companies rather than to establish new U.S. companies accounted for most of the outlays in 1998 -- 90 percent. Investment outlays by industry and by country By industry of the U.S. businesses acquired or established, outlays were mainly in manufacturing and petroleum. Manufacturing accounted for 45 percent (or $89.7 billion) of total outlays and petroleum for 36 percent (or $72.1 billion). Within manufacturing, the largest increases were in "other manufacturing" (particularly in motor vehicles and in printing and publishing) and in machinery (particularly industrial machinery and equipment). Outlays also increased in retail trade and real estate. Outlays decreased in the remaining industries; decreases were largest in the insurance industry. By country of ultimate beneficial owner (UBO), the largest investor countries were the United Kingdom ($76.9 billion), Germany ($39.9 billion), and Canada ($21.5 billion). Outlays by Japanese investors, at $2.9 billion, were only about one-seventh of their 1990 peak of $19.9 billion. The five UBO countries whose investors had the largest increase in outlays in 1998 -- the United Kingdom (up $65.0 billion), Germany ($33.5 billion), France ($11.6 billion), Canada ($9.7 billion), and the Netherlands ($9.2 billion) -- accounted for almost all of the increase in total outlays. Outlays by Japanese UBO's increased slightly. Outlays by Australian UBO's declined $5.9 billion and by Swiss UBO's declined $3.1 billion. Selected operating data The total assets of U.S. businesses newly acquired or established were $249.4 billion in 1998, up from $170.6 billion in 1997. U.S. businesses that were newly acquired in 1998 had assets of $212.3 billion, employed 584,500 workers, and owned 138,500 hectares (342,200 acres) of U.S. land. U.S. businesses that were newly established in 1998 had assets of $37,000 billion, employed 12,000 workers, and owned 11,900 hectares (29,400 acres) of land. * * * The 1997 estimate of total outlays has been revised down 2 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. The estimates cover newly acquired or established U.S. business enterprises with total assets of over $1 million or ownership of at least 81 hectares (200 acres) of U.S. land. * * * Additional details on the new investment by foreign direct investors in 1998 will appear in the June issue of the Survey of Current Business, the monthly journal of the Bureau of Economic Analysis. The preliminary estimates of net capital inflows for foreign direct investment in the United States were published in Christopher L. Bach, "U.S. International Transactions, Fourth Quarter and Year 1998," Survey 79 (April 1999): 18-65; revised estimates will be published in the July issue of the Survey. * * * BEA's major national, international, regional, and industry estimates; the Survey of Current Business; and BEA news releases are available on BEA's Web site: http://www.bea.gov STAT-USA maintains an electronic bulletin board (EBB) and an Internet site, which contains BEA estimates, BEA news releases, and the Survey of Current Business. The information available through STAT-USA is often more detailed and more timely than that available from other sources. To subscribe to STAT-USA's World Wide Web system, go to: http://www.stat-usa.gov. Subscriptions for single-user unlimited access to STAT-USA's Internet information are $50.00 for 3 months or $150.00 for 1 year. For further information, call (202) 482-1986. Summary BEA estimates are available on recorded messages at the time of public release at the following telephone numbers: (202) 606-5362 Summary of international transactions 606-5306 Gross domestic product 606-5303 Personal income and outlays. Most of BEA's estimates and analyses appear in the Survey of Current Business, BEA's monthly journal. The printed Survey of Current Business is available from the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402. First class mail: Annual subscription $104.00 domestic. Second class mail: Annual subscription $42.00 domestic, $52.50 foreign; single issue $15.00 domestic, $18.75 foreign. Table 1.--Investment Outlays and Number of Investments and Investors, 1990-98 _________________________________________________________________________________________________________________________ | | Outlays (millions of dollars) |_________________________________________________________________________________ | | | | | | | | | | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997/r/| 1998/p/ _______________________________________|________|________|________|________|________|________|________|________|_________ | Outlays, total ........................| 65,932 25,538 15,333 26,229 45,626 57,195 79,929 69,708 201,027 By type of investment: | For U.S. businesses acquired .....| 55,315 17,806 10,616 21,761 38,753 47,179 68,733 60,733 180,697 For U.S. businesses established ..| 10,617 7,732 4,718 4,468 6,873 10,016 11,196 8,974 20,330 | By type of investor: | By Foreign direct investors ......| 14,026 8,885 4,058 6,720 13,628 11,927 32,230 13,899 119,724 By U.S. affiliates ...............| 51,906 16,653 11,275 19,509 31,999 45,268 47,699 55,809 81,303 | |_________________________________________________________________________________ | | Number |_________________________________________________________________________________ | Number of investments..................| 1,617 1,091 941 980 1,036 1,124 1,155 1,112 1,087 In U.S. businesses acquired ......| 839 561 463 554 605 644 686 640 673 In U.S. businesses established ...| 778 530 478 426 431 480 469 472 414 | Number of Investors....................| 1,768 1,220 1,019 1,094 1,144 1,213 1,302 1,265 1,187 Foreign direct investors .........| 670 438 350 368 345 345 374 366 279 U.S. affiliates ..................| 1,098 782 669 726 799 868 928 899 908 _________________________________________________________________________________________________________________________ p Preliminary. r Revised. Source: U.S. Department of Commerce, Bureau of Economic Analysis . Table 2--Number of Investments by Size of Outlays, 1990-98 _________________________________________________________________________________________________________________ | | | | | | | | | | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997/r/| 1998/p/ _______________________________|________|________|________|________|_______|________|_________|________|_________ Total.................... 1,617 1,091 941 980 1,036 1,124 1,155 1,112 1,087 $2 billion or more............. 5 1 0 1 4 5 8 3 12 $1 billion - $1.9 billion...... 6 1 0 1 4 4 10 12 10 $100 million - $999 million.... 74 45 28 47 71 79 103 93 111 $10 million - $99 million...... 499 273 252 252 273 329 366 383 390 Less than $10 million.......... 1,033 771 661 679 684 707 668 621 564 Addenda: Percent of total outlays: Investments of $1 billion or more.................. 27 (D) 0 (D) 27 30 29 12 65 Investments of $1 billion or more.................. 40 12 0 19 39 41 48 37 73 Investments of $100 million or more.................. 73 59 42 64 78 78 83 79 91 _________________________________________________________________________________________________________________ D Suppressed to avoid disclosure of data of individual companies. p Preliminary. r Revised. Source: U.S. Department of Commerce, Bureau of Economic Analysis Table 3--Source of Funding of Investment Outlays, 1990-98 ___________________________________________________________________________________________________________________________ | | | | | | | | | | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997/r/ | 1998/p/ ___________________________________________|_______|________|________|________|________|_______|________|_________|________ Total outlays....................... 65,932 25,538 15,333 26,229 45,626 57,195 79,929 69,708 201,027 Funds from foreign parent groups ......... 32,495 14,114 7,808 11,921 27,014 30,847 54,737 37,421 155,307 Funds from other foreign sources or U.S. sources.......................... 33,437 11,424 7,525 14,308 18,612 26,348 25,192 32,287 45,720 Addendum--Funds from foreign parent groups as a percent of total ........... 49 55 51 45 59 54 68 54 77 ___________________________________________________________________________________________________________________________ p Preliminary. r Revised. Source: U.S. Department of Commerce, Bureau of Economic Analysis Table 4.--Investment Outlays by Industry of U.S. Business Enterprise and by Country of Ultimate Beneficial Owner, 1990-98 [Millions of dollars] _________________________________________________________________________________________________________________________________ | | | | | | | | | | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | 1996 | 1997/r/|1998/p/ ____________________________________________|________|________|________|________|________|________|________|________|______ Total................................. 65,932 25,538 15,333 26,229 45,626 57,195 79,929 69,708 201,027 By industry: Petroleum................................. 1,141 702 463 882 469 1,520 1,059 762 72,136 Manufacturing............................. 23,898 11,461 6,014 11,090 21,218 26,643 27,835 19,603 89,679 Food and kindred products............... 997 1,247 404 1,294 4,567 3,802 1,145 1,949 1,556 Chemicals and allied products........... 7,518 2,897 1,644 5,035 6,905 12,511 3,961 4,539 4,168 Primary and fabricated metals........... 2,447 797 1,187 1,297 1,485 547 3,222 1,327 1,877 Machinery............................... 3,795 4,929 1,002 1,778 1,867 4,489 4,355 4,788 21,951 Other manufacturing..................... 9,141 1,591 1,778 1,686 6,393 5,293 15,151 7,000 60,127 Wholesale trade........................... 1,676 623 698 837 2,156 1,168 4,746 2,612 907 Retail trade.............................. 1,250 1,605 256 1,495 1,542 2,838 2,988 435 1,963 Depository institutions/1/................ 987 482 529 958 2,026 2,301 1,944 3,547 1,104 Finance,except depository institutions/1/. 2,121 2,199 797 1,599 2,195 7,837 8,676 7,019 6,195 Insurance................................. 2,093 2,102 291 1,105 450 654 4,688 8,526 4,325 Real estate............................... 7,771 3,823 2,161 1,883 2,647 2,996 4,175 4,119 5,272 Services.................................. 19,369 2,256 2,023 4,162 7,163 5,881 15,292 12,187 9,951 Other industries.......................... 5,716 284 2,101 2,218 5,760 5,359 8,528 10,898 9,496 By country/2/: Canada.................................... 3,340 3,454 1,351 3,797 4,128 8,029 9,700 11,755 21,480 Europe.................................... 36,011 13,994 8,344 16,845 31,920 38,195 49,427 44,014 160,612 France.................................. 10,217 4,976 406 1,249 1,404 1,129 6,021 2,578 14,129 Germany ................................ 2,363 1,922 1,964 2,841 3,328 13,117 12,858 6,464 39,949 Netherlands............................. 2,247 1,661 1,331 2,074 1,537 1,061 6,476 10,244 19,446 Switzerland............................. 3,905 1,327 1,259 804 5,044 7,533 4,910 6,745 3,637 United Kingdom.......................... 13,096 2,169 2,255 8,238 17,261 9,094 14,757 11,834 76,881 Other Europe............................ 4,183 1,939 1,129 1,639 3,346 6,261 4,405 6,149 6,570 Latin America & Other Western Hemisphere.. 796 375 1,438 874 1,352 1,550 1,790 924 10,457 South and Central America............... 399 108 1,152 527 (D) 1,283 (D) 166 813 Other Western Hemisphere................ 397 267 286 347 (D) 267 (D) 758 9,644 Africa................................... (D) (D) (D) (D) (D) (D) (D) (D) 145 Middle East............................... 472 1,006 238 1,308 (D) 447 (D) 847 2,968 Asia and Pacific.......................... 23,170 6,560 3,716 3,004 5,263 8,688 12,751 11,786 5,207 Australia............................... 1,412 251 164 129 1,522 2,270 2,222 7,600 1,726 Japan................................... 19,933 5,357 2,921 2,065 2,715 3,602 8,813 2,326 2,872 Other Asia and Pacific.................. 1,825 952 631 810 1,026 2,816 1,716 1,860 609 United States/3/.......................... (D) (D) (D) (D) 201 (D) (D) (D) 159 _______________________________________________________________________________________________________________________ D Suppressed to avoid disclosure of data of individual companies. p Preliminary. r Revised. 1. Prior to 1992, "depository institutions" excludes, and "finance, except depository institutions" includes, savings institutions and credit unions. Beginning with 1992, savings institutions and credit unions have been reclassified from "finance, except depository institutions" to "depository institutions." 2. For investments in which more than one investor participated, each investor and each investor's outlays are classified by country of each ultimate beneficial owner (UBO). 3. The UBO is the first person in the ownership chain of the acquired or established U.S. business, beginning with the foreign parent, that is not owned more than 50 percent by another person. The foreign parent is the first foreign person in the ownership chain. The country of UBO is often the same as that of the foreign parent, but it may be a different foreign country or the United States. Source: U.S. Department of Commerce, Bureau of Economic Analysis . Table 5.--Total Assets, Sales, Net Income, Employment, and Hectares of Land Owned by U.S. Business Enterprises Acquired or Established, by Industry of U.S. Business Enterprise, 1998 (Millions of dollars unless otherwise indicated) ____________________________________________________________________________________________________________________________________________________ |Total as-| U.S. business enterprises acquired | U.S. business enterprises established |sets of |_____________________________________________|______________________________________________ |all U.S. | | | | | | | | | | |business | Total |Sales/1/| Net | Number | Number | Total |Sales/1/| Net | Number | Number |enter- | assets| | income | of | of | assets| | income | of | of |prises | | | | employ-| hectares| | | | employ-| hectares |acquired | | | | ees | of land | | | | ees | of land |or estab-| | | | | owned/2/| | | | | owned/2/ |lished | | | | | | | | | | _____________________________________________|_________|_______|________|_________|________|_________|_______|________|_________|________|_________ All industries ........................ 249,364 212,306 144,045 3,164 584,450 138,524 37,058 16,079 617 12,324 11,871 Petroleum ................................... (D) (D) (D) (D) (D) (D) 5,467 12,240 (D) 4,658 1,732 Manufacturing ............................... 105,722 104,647 90,340 2,428 258,491 (D) 1,075 909 -9 2,017 (D) Food and kindred products ................. 1,482 (D) 2,275 (D) 13,191 (D) (D) 101 (D) 367 (D) Chemicals and allied products ............. 3,134 (D) (D) 18 (D) 849 (D) (D) -2 (D) 0 Primary and fabricated metals ............. 2,897 2,854 (D) 70 11,676 (D) 44 (D) (*) 75 (D) Machinery ................................. 13,928 13,537 (D) -219 31,316 (D) 391 (D) -25 1,136 (D) Other manufacturing ....................... 84,281 84,190 77,864 (D) (D) (D) 91 75 (D) (D) (D) Wholesale trade ............................. 2,069 1,787 3,685 5 10,082 288 282 206 7 275 14 Retail trade ................................ 2,483 2,474 6,479 124 (D) 65 9 5 (*) (D) 0 Depository institutions/3/................... 9,504 9,504 525 (D) (D) 12 0 0 0 0 0 Finance, except depository institutions/3/... 38,071 13,106 1,835 183 6,190 (D) 24,965 (D) 187 1,018 (D) Insurance ................................... 22,415 22,400 4,119 -4 (D) 25 16 6 2 (D) 0 Real estate ................................. 5,060 330 57 7 (D) 51 4,730 703 118 (D) (D) Services .................................... 11,705 11,584 (D) -298 (D) (D) 121 (D) 2 (D) (D) Other industries ............................ (D) (D) (D) (D) 27,794 (D) 394 (D) (D) 671 (D) ____________________________________________________________________________________________________________________________________________________ * Less than $500,000 (+/-). D Suppressed to avoid disclosure of data of individual companies. 1. Sales, or gross operating revenue, excluding sales taxes. 2. One hectare equals 2.471 acres. Thus, in terms of acres, the businesses that were acquired owned 342,293 acres of land, and those that were established owned 29,333 acres. 3. See footnote 1, table 4. NOTES.--Data for 1998 are preliminary. For acquired businesses, data are for, or as of the end of, the fiscal year preceding the year of acquisition; for newly established businesses, data are projections for, or as of the end of, the first full year of operation. Source: U.S. Department of Commerce, Bureau of Economic Analysis