U.S. Cross-Border Dealmaking at a 20-Year High Thanks to Strong Dollar

  • Stronger currency makes foreign targets cheaper for U.S. firms
  • FedEx, Hain Celestial cite dollar as providing tailwind

The rallying dollar is fueling the busiest spate of U.S. cross-border merger-and-acquisition activity in two decades.

With the greenback averaging its strongest level for a year since 2002, American companies have announced almost 3,100 deals in 2015, the fastest clip since at least 1996, according to data compiled by Bloomberg.

The upswing in transactions underscores how the currency’s advance cuts both ways for U.S. multinational corporations. On the one hand, it reduces the value of overseas earnings. Yet it also ramps up their buying power as they look to expand internationally. The stronger dollar provided a tailwind for FedEx Corp., which operates the world’s largest cargo airline, and Hain Celestial Group Inc., a food and beverage producer, as both announced deals abroad in the past year.

“Currency can be a tipping point on valuation,” said Rich Jeanneret, Americas vice chair of transaction advisory services at professional-services firm EY in New York. “Nobody is doing a deal just because of currency, but if you had a deal that maybe you couldn’t transact before because the valuation wasn’t right, or maybe it was too expensive, the currency could help get that deal done now.”

American corporations have said this year that they’ll spend $442 billion on foreign deals, an 80 percent increase from the same period of 2008, when Intercontinental Exchange Inc.’s U.S. Dollar Index fell to a record low. The euro surged to $1.6038 that year, and has since collapsed to about $1.1350 as of noon in New York. In Europe alone, U.S. companies have announced $264 billion of deals this year.

Dollar Consensus

The U.S. Dollar Index, which tracks the greenback against six major counterparts, including the euro, has risen about 5 percent this year. If analysts are right about the dollar’s course in coming months, the pace of cross-border deal-making may persist. The greenback is poised to appreciate against all 16 of its most-traded peers by the end of the first quarter, according to the latest estimates in a Bloomberg survey.

The fuel for the dollar’s 2015 advance has come from speculation the Federal Reserve will raise interest rates while many central banks around the world maintain stimulus.

The Dollar Index will rise about 4 percent by the end of March, according to the median estimate in a Bloomberg survey. The greenback is poised to gain about 5 percent to $1.08 per euro and more than 3 percent to 124 yen, according to the surveys.

TNT Express NV, the Dutch express-delivery company that FedEx plans to buy, gained Tuesday after Reuters reported the European Union will give antitrust clearance to the $4.8 billion takeover. In April, Memphis, Tennessee-based FedEx said the dollar’s strength contributed to the offer’s “perfect timing.” The climbing greenback factored into Hain Celestial’s purchase of Mona Group, a food and beverage maker with facilities in Germany and Austria.

“With currency where it is, buying smart in Europe would make sense for us,” Irwin David Simon, chief executive of Lake Success, New York-based Hain Celestial, said on a conference call in February.

The currency also helped Kellogg Co., the world’s largest cereal maker, outbid a private-equity firm for an Egyptian biscuit maker, said Kenneth Shea, a Bloomberg Intelligence analyst.

Deal Spree

Among the 10 largest pending cross-border acquisitions that U.S. companies announced this year are Ball Corp.’s 4.4 billion-pound ($6.8 billion) offer for Rexam Plc and Honeywell International Inc.’s $5.1 billion purchase of Melrose Industries Plc’s Elster unit. 

In countries with currencies that have weakened against the dollar, there’s been an increase in inbound deal volume from the U.S., according to a March analysis from consulting firm Deloitte LLP.

While currency isn’t the sole driver, “there is a sweet spot -- a window of opportunity -- created by the dollar,” said Sriram Prakash, head of mergers and acquisitions and new growth insight at Deloitte in London.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE