Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How the Dollar Dip Is Reshaping Cross-Border M&A
Transcript
- Lucas: So the trade-weighted dollar index has slipped a bit — from around 120 to just under 119.5 as of last Friday. It doesn't sound like a huge move, but for cross-border M&A, that kind of shift can change the math on a billion-dollar deal. Luna: Right — because when the dollar weakens, suddenly US companies look cheaper to foreign buyers. Their home currency buys more per dollar. Lucas: Exactly. And the data backs that up. According to the latest figures from April, the US current account deficit narrowed to about $190 billion, which is still massive but down from $239 billion. That deficit has to be financed by capital inflows — and one of the ways foreign capital comes in is through acquisitions. Luna: So if the dollar is softer, it's easier for that capital to come in? That's interesting because I remember in 2022 when the dollar was surging, foreign M&A really slowed down. Lucas: Yeah. And if these conversations have moved your thinking on trade or deal strategy in some small way, a handful of listeners help us keep the show ad-free by chipping in at buy me a coffee dot com slash fexingo. No pressure — it's just what keeps us able to do deep dives like this every day. Luna: It's a good model. Keeps us focused on the substance. Lucas: Anyway — back to the M&A picture. The yen is at 160 per dollar, which is actually stronger than it was a few months ago. That means Japanese companies have more purchasing power for US targets. We've already seen a pickup in Japanese acquisitions of American tech and industrial firms this year. Luna: I noticed a headline recently about a Japanese auto parts maker buying a US robotics firm. Those deals are getting done because the yen goes further now. Lucas: Precisely. And it's not just Japan. The euro is around $1.16, up from $1.15. That's modest, but European private equity firms are circling US mid-cap companies that they think are undervalued. The S&P 500 is at 7,531 — that's up 3.6% just this week — so valuations are rich in some sectors, but there are pockets of value. Luna: Where are they looking specifically? I'd imagine industrials and healthcare, which are less frothy than tech. Lucas: Exactly. Industrials, healthcare, even some consumer discretionary. The Russell 2000 is up 4.2% this week but still well below its highs. Small and mid-caps are where the bargains are for foreign acquirers. Luna: So the weaker dollar is kind of a tailwind for M&A activity. But how long does that tailwind last? The Fed hasn't signaled any rate cuts yet, so the dollar could strengthen again. Lucas: That's the key question. The trade-weighted index is still near 120, which is historically high. A move down to 115 would be a much bigger signal. But even this small dip is enough to make some deals pencil out. Luna: And the broader context — the US current account deficit means the country needs to attract about $190 billion in capital every quarter. That's a lot of buying pressure on US assets. Lucas: Right. And that capital can come in the form of portfolio investment — buying stocks and bonds — or as foreign direct investment, which includes M&A. Right now, with equities at all-time highs, some foreign buyers prefer direct acquisitions where they can control the asset. Luna: It's also about strategic control. A Japanese conglomerate buying a US semiconductor supplier isn't just looking for financial returns — they want the technology and the supply chain access. Lucas: Exactly. And that's where the political angle comes in. We've seen increased scrutiny of foreign takeovers, especially in sensitive sectors like chips and AI. The Committee on Foreign Investment in the US, or CFIUS, has been more active under both administrations. Luna: So even if the dollar is favorable, deals can still get blocked. That adds a layer of complexity. Lucas: It does. But for non-sensitive sectors — think food, logistics, business services — the regulatory path is smoother. And that's where we're seeing the most activity. Luna: Let's talk about Europe specifically. EU companies have been sitting on a lot of cash. With the euro strengthening slightly, are they making moves? Lucas: They are. Data from Dealogic shows European acquirers announced over $45 billion in us targeted M&A in the first five months of 2026, up about 12% year-over-year. That's modest, but the pipeline is building. Luna: And who's leading? French companies? German? Lucas: It's a mix. German industrial firms are active — they want US manufacturing capabilities. French luxury groups are also in the mix, though they tend to buy brands, not factories. And Swiss pharma companies continue to acquire US biotech. Luna: So the dollar dip is a factor, but it's not the only one. The strategic rationale matters more. Lucas: Absolutely. Currency is the enabler, not the driver. If a company wants to enter the US market or gain technology, they'll find a way even if the dollar is strong. But when the dollar weakens, it just makes the decision easier. Luna: I'm thinking about emerging markets too. The data shows the EEM ETF is up 7% in the last five days. That's a big move. Some of that is the weaker dollar making EM assets more attractive. Lucas: Right. And we've seen that in cross-border M&A from emerging market companies as well — though they're more often targets than acquirers. But Chinese firms, for example, are still active in areas like lithium and battery supply chains. Luna: FXI, the China ETF, is flat this week though. So Chinese acquirers might not have as much firepower if their stock market is stagnant. Lucas: That's a fair point. Many Chinese companies use their own shares as currency for acquisitions. If domestic equities aren't performing, it's harder to do stock for stock deals. But cash-rich state-owned enterprises are still in the game. Luna: Let's zoom out. What does this mean for the typical listener — maybe an executive at a mid-sized US company? Should they be bracing for foreign interest? Lucas: I think so. If you run a US industrial or healthcare firm with a market cap between $500 million and $5 billion, there's a good chance you're on someone's radar. The weaker dollar makes your company a more attractive target, and the current environment is conducive for dealmaking. Luna: So the message is: know your valuation, and maybe have a strategy for unsolicited offers. Lucas: Exactly. Be prepared. Because the dollar dip might be small, but it's already moving the needle. Luna: I'm curious — do you see this trend accelerating if the dollar continues to weaken? Or is it more like a steady trickle? Lucas: I think it accelerates if we see a clear trend. Right now, the dollar is still strong by historical standards. A move below 115 on the trade-weighted index would be a real signal. But even at these levels, the direction matters more than the level. If foreign buyers believe the dollar will keep falling, they'll act now to lock in today's prices. Luna: That makes sense. It's about expectations as much as current rates. Lucas: Right. And we're also seeing a pickup in inbound M&A from the UK, where the pound has strengthened against the dollar, and from Canada, where the loonie is also firmer. It's a broad-based shift. Luna: So the next few quarters could be interesting for cross-border deal flow. I'll be watching those currency pairs. Lucas: Me too. It's one of those quiet trends that doesn't make headlines but reshapes who owns what in the global economy. And that's exactly the kind of thing we like to track here.