Compared to all global currencies, the U.S. dollar is the strongest it’s been since 2000. The dollar is nine percent stronger than the Euro, five percent stronger than the Canadian dollar, and a whopping 20.6 percent stronger than the Japenese Yen. The relative strength of the domestic currency has made overseas assets more appealing to institutional investors and corporate buyers.
IDEX Corp.’s acquisition of the Netherlands-based Muon Group for EUR 700 million ($724.78 million) is a good example of this. The transaction is nine percent cheaper because of the Euro’s relative weakness this year. In aggregate, U.S. buyers completed deals for European assets worth $230 billion this year, according to data compiled by Bloomberg.
“Offshore assets have become even more compelling with the dollar’s strength,” says Richard De Silva of Lateral Investment Management. “We have one company we’re looking at that’s outside the U.S. and as we do diligence it becomes even more compelling. I’m hearing this from my peers too. It’s definitely an opportunity to look for great assets outside the U.S.”
De Silva’s interest in foreign assets is especially noteworthy because Lateral’s portfolio is entirely U.S.-based at the moment.
The U.K. has emerged as one of the most attractive destinations for American bargain hunters. The Great British Pound has lost 11.5 percent of its value against the dollar this year. The pound hit a historic low in September, trading at just $1.08. The currency crisis hasn’t discouraged cross-border acquirers.
Blair Jacobson, co-head of European credit at U.S. private equity firm Ares Management and Blackstone COO Jon Gray both mentioned the attractiveness of British assets in recent interviews with the media.
Meta Platforms acquired British startup Audio Analytic and Berlin-based Lofelt this year. Meanwhile, Atlanta-based Chart Industries purchased Howden, a U.K.-based provider of air and gas handling products, for $4.4 billion.
“Despite current wobbles, the U.K. still remains attractive,” says Andrea Guerzoni, EY global vice chair, strategy and transactions. “Something that is evident in the fact that the U.K. remains the second most attractive investment destination for cross-border deals in 2022, behind only the U.S.”
It should be noted that the dollar’s strength is built on volatile and unpredictable macroeconomic factors such as inflation, interest rates and tax policy. Lateral’s De Silva described the current situation as a “temporary arbitrage” and was quick to point out that the currency exchange rate wasn’t the only factor that guided their investment decisions. “The fundamental thesis has to make sense. We’re not currency traders.”