MANAGING DIRECTOR COMMENTS
ON GLOBAL MERGER MARKET
08/18/08
Strengthening Dollar May Slow Sales of U.S. Companies to Foreigners
Financial Week
August 18, 2008
The dollar has been on quite a run against the euro and the British pound over the past month, but don’t expect its resurgence to interfere with cross-border mergers and acquisitions activity—at least not yet.
Since the middle of July, the dollar has gained 8.3% against the euro and 7.5% against the pound, as falling commodity prices eased some concerns about the U.S. economy. That could make companies based in the United States more expensive for international acquirers, which have been feasting on U.S. companies during the dollar’s long slump. While global M&A activity fell 30% in the first half of this year to its lowest level since 2005, deals for U.S.-based businesses by acquirers based abroad remained relatively strong, falling only 8%.
“If this trend is sustained, and the dollar really does stay on this streak, then I do think it is going to slow things down,” said Doug Getter, a partner at the law firm Dechert. “The run-down [in the dollar] fueled a lot of the cross-border deals that have been done over the last 12 to 18 months, so therefore you’d think a run-up would slow it down.”
Still, it’s too early to say whether or how much the dollar’s newfound strength will affect international M&A. Many analysts say the greenback’s rally may end soon. And the dollar probably hasn’t made big enough gains in only a month’s time to make currency exchange rates a big factor in most deals.
“Exchange rates can play a contributory role on a deal, but they’re almost never determinative,” said Scott Hardman, a managing director at Alexander Hutton, a middle-market investment bank in Seattle. “There might be some modest impact, but I don’t see it being a big deal.”
It’s also possible to see the dollar’s rise as good news for international deals, Mr. Getter said. A European or British company betting the dollar will continue to increase in value might view its recent surge as a chance to use depreciating assets, like euros or pounds, to buy an appreciating one, like corporate profits earned in dollars. “Today is almost an ideal time, if you believe the dollar is going to run higher, to go after U.S. assets,” he said.
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For additional information contact Scott Hardman, a Managing Director at Alexander Hutton at 206.792.1964 or shardman@alexanderhutton.com