Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the Weakening Dollar Is Reshaping Cross-Border M&A
Transcript
- Lucas: The U.S. dollar index has slipped about 2% from its peak in mid-June, settling around 120.7 as of this week. That's not a crash — but it's enough to quietly reshape who buys what in the global economy. Luna: And you're thinking about cross-border M&A, right? Because for a European or Japanese buyer, suddenly American companies are on sale. Lucas: Exactly. The dollar weakened about 3% against the euro since May, and nearly 4% against the yen. When you're a German industrial firm or a Japanese conglomerate looking to acquire in the U.S., that currency swing directly improves your purchasing power. Luna: Do we have numbers on whether that's actually translating into deals? Lucas: We do. Cross-border M&A into the U.S. hit roughly $120 billion in the first half of 2026, according to data from Dealogic. That's up about 35% year-over-year. And the second quarter — precisely when the dollar started slipping — saw the biggest spike. Luna: So the currency move is a tailwind, but it's not the only factor. What else is driving this? Lucas: Valuations. The S&P 500 is trading around 22 times forward earnings. That's not cheap by historical standards, but relative to the Euro Stoxx 50 at 16 times, or the Nikkei at 18 times, U.S. equities are actually more expensive on that metric. But when you layer in the currency discount, the effective price for a foreign buyer comes down. Luna: So a Japanese firm looking at a U.S. target with a 22 P/E effectively sees a 21 P/E after the yen's gain. That's real. Lucas: Right. And it's not just public companies. Private equity firms in Europe and Asia are also circling. They're sitting on record dry powder — about $2.5 trillion globally — and a weakening dollar makes U.S. portfolio companies more attractive. Luna: What about the flip side? Does this mean U.S. companies are less likely to shop abroad? Lucas: It does make outbound M&A more expensive for U.S. acquirers. If you're an American firm looking to buy in Europe, you're getting fewer euros per dollar than you were a year ago. So the trend is asymmetric right now — more inbound, less outbound. Luna: And that's showing up in the data too? Outbound U.S. M&A is down? Lucas: Modestly. Outbound volumes are off about 8% year-to-date. But the bigger story is the composition. We're seeing more deals in industrials and technology from European buyers, and more healthcare and consumer deals from Japanese buyers. Each region has its hunting ground. Luna: So let's get specific. Are there any notable deals this year that fit this pattern? Lucas: One that's emblematic: Siemens Healthineers acquired a U.S. diagnostics firm for about $3 billion back in April. That deal was announced right as the euro was strengthening. The German buyer effectively saved around $90 million on the purchase price compared to if they'd done the deal three months earlier. Luna: That's a real number. And it's a reminder that currency timing is a serious part of M&A strategy. Lucas: Absolutely. In fact, many large acquirers now have dedicated currency desks that monitor the dollar around the clock. They'll delay signing a deal by a few weeks if they think the dollar will weaken further, or accelerate if they think it's about to reverse. Luna: And speaking of listeners who follow these cross-border dynamics closely — we keep these episodes free of ads because we think the information should be accessible. If these conversations have moved your work forward in some small way, you can support that at buy me a coffee dot com slash fexingo. No pressure, just a way to keep it ad-free. Lucas: Yeah, it's a deliberate choice. We'd rather let the content speak for itself. And it's listeners like you who make that possible. Luna: So back to the M&A landscape — how long do you expect this dollar weakness to persist? Lucas: Hard to say. The Federal Reserve has held rates steady at 5.25%, but the market is pricing in a cut later this year. If the Fed does ease, the dollar could weaken further. That would likely accelerate inbound M&A even more. Luna: But there's also the political angle. We've got the USMCA non-renewal issue and ongoing trade tensions. Does that complicate cross-border deals? Lucas: It does for certain sectors. Defense, critical infrastructure, and anything involving sensitive technology faces heightened CFIUS scrutiny. But for mainstream industrial or consumer deals, the regulatory environment hasn't changed dramatically. The currency is the bigger near-term factor. Luna: And what about private equity? Are they using currency hedging to lock in the advantage? Lucas: Large firms absolutely do. They'll hedge the purchase price using forward contracts. But it's not just about the acquisition — it's about the returns. If you buy a U.S. company with euros, and then the dollar strengthens again before you exit, your euro-denominated return gets a bonus. Luna: So it's a double-edged sword. The currency move can help on the way in and hurt on the way out, or vice versa. Lucas: Exactly. That's why sophisticated buyers think in terms of the full holding period. They model multiple currency scenarios and structure their financing accordingly. Luna: Let's talk about financing itself. When a foreign buyer uses dollar-denominated debt to fund a U.S. acquisition, does the weaker dollar change that calculus? Lucas: It does. If the acquirer borrows in dollars, their debt payments are in dollars. If the dollar weakens, the cost of servicing that debt in their home currency goes down. That's another tailwind. Conversely, if they borrow in euros, the weaker dollar makes the interest payments cheaper in dollar terms but the principal repayment more expensive in euro terms. It gets complicated. Luna: Any sectors that are particularly hot right now for inbound M&A? Lucas: Technology services and software are big — European firms are hungry for AI and cloud capabilities. Also healthcare services, where U.S. companies have scale that European acquirers lack. And interestingly, real estate: foreign buyers are picking up U.S. logistics and data center properties, partly because the dollar makes them cheaper. Luna: And what about from the U.S. perspective? Are there any American companies that are taking advantage of the weaker dollar to expand abroad despite the cost? Lucas: A few. Large multinationals with strong dollar revenues can afford to pay a premium for strategic assets. But most are being cautious. The CFOs I talk to say they're waiting for more clarity on both rates and trade policy before committing to big overseas deals. Luna: So the aggregate picture is: inbound M&A rising, outbound falling, and the dollar's trajectory is the key variable. Lucas: I think that's right. And here's a stat that ties it together: in Q2 2026, the share of global M&A that was cross-border into the U.S. hit 18%, the highest since 2019. That's a clear signal that the dollar's slide is reshaping the deal map. Luna: And if the dollar continues to weaken, we could see that share climb even higher. Lucas: We could. But keep an eye on the trade-weighted index. It's still at 120.7 — historically high. Even with the recent dip, the dollar is strong by any longer-term measure. So this might be a correction within a strong-dollar era, not a reversal. That would still favor inbound M&A, just at a more moderate pace. Luna: Good nuance. I think the takeaway for our listeners is: if you're involved in cross-border deals, currency is no longer a background factor — it's a first-order strategic input. Lucas: Exactly. And the window might not last forever. If the Fed doesn't cut, or if trade tensions escalate, the dollar could strengthen again. So for buyers sitting on the sidelines, the clock may be ticking.