Where Are All the Europeans?

Conditions seem ripe for a transatlantic M&A invasion. There are good reasons it isn't happening.

What concerned Medford more was the array of regulatory issues to be confronted when doing business across Europe. “You have to deal with so many authorities,” he says, “that it gets expensive if you are just doing a little bit.” That’s why Medford believes European expansion plans need scale before they make sense. “You can’t just dabble,” he says.

Still, some experts say that U.S. companies do need to consider the impact of exchange rates on European acquisitions. One way to offset an unfavorable exchange rate is to raise cash by issuing debt in the target company’s home currency, notes Jimmy Elliott, head of North American M&A at JPMorgan. “Acquirers need to weigh foreign-exchange risk against value risk and credit risk to determine which risks to hedge,” he says.

GE’s purchase of Amersham, for example, will cost nearly $350 million more due to the dollar’s decline since the deal was announced last October. And since it is an all-stock deal, GE has fewer options for hedging against the falling value of the dollar.

GE is going ahead with that purchase. But what should a company do if another sharp jump in the euro creates the temptation to kill its European acquisition plans, on put them on hold? Make them part of a broad pricing review, the experts suggest.

“You have to look at all the variables,” says Arthur H. Rosenbloom, managing director of CFC Capital LLC, a New York M&A advisory firm. At some point, “a negative turn in exchange rates could be enough to make an attractive target too pricey.”

Joseph McCafferty is news editor of CFO.

Against the Tide
Americans are buying European assets despite unfavorable exchange rates, while Europeans, after an earlier invasion, are largely passing on U.S. deals.

(in $ billions)

Americans targeting European companies
Europeans targeting American companies
1998
66.8
165.2
1999
84.7
198.9
2000
82.1
194.8
2001
41.4
60.6
2002
36.3
35.8
2003
74.8
6.1

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