The FX Impact of Cross-Border M&A

Abstract

Globalisation has led to a steady increase in the number of cross-border M&A activities, and so these deals are increasingly discussed in the FX market. However, since M&A activity is still measured in billions of dollars per month, as compared with the trillion-plus a day traded in the FX market, it is not clear what impact these deals actually have in practice. Using a large sample of past M&A deals, we find that these deals do indeed have an impact on exchange rates, causing, on average, a 1% appreciation of the target nation currency relative to the acquirer. We also find that such currency moves can be predicted using publicly available data. From our results, we construct an M&A currency pressure indicator that can be used to helpinterpret and predict currency moves due to M&A.