Offshore Buyers Scoop Up Bargains in the U.S.!
Profit prospects for Wall Street's investment banks may not be so dim after all, thanks to record Merger and Acquisition (M&A) activity from offshore investors.
Or as a recent story in Bloomberg put it, the number of "takeover offers for U.S. companies is beginning to recover from a near-death experience in August."
While U.S.-based private equity firms may still be ducking for cover from the after-shocks of the Wall Street credit crunch, overseas buyers in both Europe and Asia are still eager to do deals. It seems these strategic M&A buyers are attracted by cheap U.S. dollar-denominated assets.
"Mergers and acquisitions may set a worldwide record of more than US$3.57 trillion before this year ends," according to the article, spurred by "cross-border activity."
International buyers are picking up the slack from U.S. based buyout firms, with US$282 billion of announced M&A deals so far this year - more than in six of the past seven years.
In fact, "takeovers by overseas buyers account for 26% of all U.S. acquisitions, the most in four years, helping insulate Wall Street bankers from the drop in leveraged buyouts," according to Bloomberg. For domestic private equity firms, it's a reversal of fortune. After announcing a flurry of transactions totaling more than US$200 billion in June and July alone, private-equity deals announced last month fell to just US$19 billion.
What's more, overseas acquirers may just be getting warmed up. "The pace of foreign purchases ultimately might match the volume of domestic deals, as chief executive officers outside the U.S. diversify their holdings," according to the article.
The reason is simple: a weaker U.S. dollar, and corporate profit margins that have (so far at least) held up near record highs, combine to make U.S. based firms appear more attractive than ever to offshore buyers.
The euro and yen have both appreciated against the dollar this year, and with the probability of Fed interest rate cuts on the rise, to help ease the credit crunch, the greenback may slide even further in the months ahead.
It's worth noting that the last buyout boom by foreign companies peaked at US$350 billion - right at the top of the internet-bubble market in 2000. Many of those deals turned out to be rather poor investments.