KPMG warns global M&A players
Date: 15-04-2008
Source: The Economic Times
As the US dollar struggles against other leading currencies, M&A commentators at KPMG have warned acquisitive companies to beware of the faltering green-back. According to them, the undeniable allure of a cheaper route into one of the world's major consumer markets could cause some companies to disregard the basic rules of M&A transactions.
Striking a deal that is attractive mainly because of a currency weakness could turn an acquirer into nothing more than a foreign exchange trader, looking for financial arbitrage and betting on a long-term rebound of the dollar. Irrespective of market conditions, one shouldn't ignore the tried and trusted rules of business, said KPMG Advisory practice partner and global head of transaction services Gopal Ramanathan.
"Ensuring a strategic fit between acquirer and target ought to be the prime consideration," he added. "If you somehow realise an added benefit as a result of currency fluctuations, that's an icing on the cake, but icing without the cake can make you sick."
The US dollar hit an all-time low against the euro in late March. Mr Ramanathan said any returns made on an investment in the US will also be earned in the same weak dollar. Therefore, companies making a currency 'play' need to be in it for the long-term upswing in the currency value and this is the realm of the foreign exchange trader, not an acquisitive business looking to grow based upon a sound acquisition strategy.
According to consultancy and accountancy KPMG India CEO Russell Parera, there's some talk in M&A circles that the current credit crunch in the West and the general slowing down of the US economy provides a unique opportunity for Indian companies to acquire US businesses on the cheap. "However, in evaluating such opportunities Indian companies should perform adequate sensitivities in their valuation models to assess the impact of a fluctuating rupee and the unlikely scenario as we see it today of a strengthening dollar. This analysis will paint a more realistic picture in the long term."
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