In this post-Brexit world in which we live, a lot is made of the weaker Sterling and its impact upon cross-border M&A activity. As we have alluded to in previous posts: this is a shallow take-away that doesn't delve deeper into the complex rationales and reasonings that come into play when considering M&A activity.


Using very rough maths, we can see that GBP is down around 15% against the dollar over the last year, EUR around 0.8%.

Using the oft trotted out platitude that weaker GBP/USD rates will lead to increased investments from the States into the UK, it would make logical sense to infer the opposite stands true also: less UK investment in the US. After all, 'prices will be higher'.

As the below quotation illustrates: that hasn't been the case. And for fairly obvious reasons: Reckitt Benckiser purchased Mead Johnson (for $16.6bn) regardless of the 15% currency premium. They looked under the bonnet. They knew they wanted the company: price was a secondary factor.


Mergers and acquisitions are more than just buying a $ or buying an equity, a bond, a derivative, or any other tradeable instrument. The real magic is what happens next.

If a business is just a series of cash-flows, then as exchange rates impact price, so they also impact the purchased cash flows. It's not arbitrage: you're simply buying less for less (or more for more). You may as well buy cash and leave it in a bank account and wait for the rates to change.

You're not just buying these cash flows. You're buying into the potential for synergies. In a perfect world, using the traditional (academic) model of Discounted Cash Flows (DCF) you are paying exactly the current value of all future cash flows. If you don't account for the changes you will make going forwards and the benefits that can accrue to you as the entity comes under your control: you're going to mis-price the business and not appreciate the opportunity.

You are buying potential. The potential to lower your costs, to increase your profits, to out-manoevure a competitor, to realise more efficient systems and economies of scale. You may just be buying 'X', but you are buying into 'X+Y'.

Of course an exchange rate change will have some impact on cross-border M&A activity, but this will be minimal when compared to the underlying rationale of the deal: Why are we buying this company?

This is the key thing to consider when considering any transaction, as either buyer or seller: look at why before you look at how muchThe answer to the first will give much greater clarity on the second.