By Liz Hoffman And Vipal Monga
American companies looking to do deals abroad are finding a
welcome tailwind: a strong U.S. dollar.
After some time in the doldrums, the greenback has gained 25.5%
against the euro, 20.8% against the Japanese yen and 9.5% against
the British pound over the past year.
The moves make it cheaper for U.S. companies to buy foreign
ones, and is among several factors amid an overall M&A
boom--including inexpensive debt, big overseas cash reserves,
strong performance of U.S. companies relative to peers abroad and
CEO confidence--that are encouraging U.S. buyers to set their
sights on foreign rivals.
The rising dollar is good news for companies on the hunt, and
for bankers and lawyers who advise them--especially in Europe,
where mergers-and-acquisitions activity has trailed a U.S.
rally.
"I think we'll continue to see an increase in U.S. companies
looking to acquire abroad, taking advantage of the dramatic moves
we've seen in the dollar," said Scott Bok, chief executive of
M&A advisory boutique Greenhill & Co.
U.S. companies committed $250 billion to overseas acquisitions
last year, the most on record, according to FactSet data going back
to 1995.
That is a 136% rise from 2013, far outpacing the overall
increase of about 66% in global merger activity. So far, 2015 is on
pace to log more than $350 billion in U.S. outbound deals.
Delivery company FedEx Corp. cited the stronger dollar in its
pending $4.8 billion takeover of Dutch carrier TNT Express NV,
announced April 7, as did XPO Logistics Inc. in its $3.5 billion
deal for France's Norbert Dentressangle SA, announced three weeks
later. And deal advisers, often quick to tell their clients why now
is the time to strike, are citing the dollar's relative buying
power.
"This deal would have cost us 20% more in dollar terms had we
done it a year or so ago," XPO's chief executive, Bradley Jacobs,
said in a conference call announcing the Norbert Dentressangle
transaction. He also emphasized the deal's strategic rationale and
said XPO was "not speculating in currency."
Still, for U.S. companies looking abroad, a strong dollar can
also complicate things. U.S. buyers must convert the foreign
acquisition's earnings into dollars for accounting purposes, which
can drag down companywide earnings, at least on paper.
The dollar's rise during the first quarter, for example, hit
earnings at companies such as 3M Co., Kimberly-Clark Corp. and
General Motors Co. as their overseas businesses contributed less in
dollar terms.
And by no means is the takeover activity one-way: Foreign
companies, especially those with strong balance sheets, are
actively investing in the U.S., where the economy is growing more
rapidly than in many other parts of the world.
Some are taking advantage of tax-rate differentials that make
U.S. companies attractive targets, as they can use their lower
foreign tax rates to wring more profit from higher-taxed U.S.
companies.
But for U.S. companies looking to buy, a robust dollar--combined
with continued depressed asset prices in parts of Europe--is a good
reason to do so now, executives and advisers say.
"We have an opportunity right now to capitalize on the strong
dollar. We are going to see if we can make that happen," Douglas
Baker Jr., CEO of Ecolab Inc., a $34 billion maker of cleaning
chemicals and equipment, told investors earlier this year.
Similar comments have come in recent weeks from executives at
companies including industrial gas supplier Praxair Inc. and
Polaris Industries Inc., a $10 billion maker of motorcycles and
off-road vehicles.
"People are looking at more cross-border opportunities than they
were," said Stephen Glover, co-chairman of the M&A practice at
law firm Gibson, Dunn & Crutcher LLP.
A pickup would be welcome news for M&A in Europe, where the
deals market has been slower to recover from the financial
crisis.
A few big European takeovers struck in recent months have
sparked hopes of a revival that a robust dollar could support, said
Bob Bartell, global head of corporate finance at investment bank
Duff & Phelps Corp.
He cautioned, however, that much risk remains in Europe. The
potential of a Greece exit from the euro currency zone or a U.K.
exit from the European Union continue to hang over the Continent's
fragile economy, which is growing slowly. "It's a bit of question
mark," Mr. Bartell said.
And currency is, at best, a secondary reason to go shopping, far
less important than long-term growth prospects and strategic fit,
executives and advisers say.
"Companies are going to buy where they see an opportunity," Mr.
Bok said. A favorable foreign-exchange rate "doesn't turn an
otherwise bad transaction into a good one."
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