For just 10 seconds last Friday night the free-floating Aussie dollar made history, reaching parity with the great US Greenback. It's the highest the dollar has been against the Greenback since it was floated back in 1983. But with some analysts predicting it will soon surpass the American dollar, what does this mean for the Australian M&A market?
According to Mallesons Stephen Jaques M&A partner Joshua Cole, the rise of the Australian dollar has the potential to impact the market but only in the short term. “When the value of it changes significantly, it gives people cause to re-evaluate the deal,” he told ALB. “However, I expect in the long term there will not be any significant impact.”
Although the US is the second-biggest market for M&A investment into Australia, after Asia, Cole said, those investments tend to be for the long term, as they normally involved energy and resources companies. “The US investments are typically coming through because those companies have strong balance sheets and Australia is a stable economy, with strong balance sheets, and strong potential for growth. An increase in the value of the Australian dollar does not change the fundamentals, but it does change the interest levels,” he added.
Blake Dawson M&A partner Marie McDonald said the strength of the Australian dollar against the US dollar was the by-product of having a strong economy, which was what was driving the investment into Australia in the first place. She said it would be unlikely the dollar going up would change the level of investment, but it might change the way in which deals are carried out.
“It has an effect on the ability of foreign acquirers to offer Australian dollars in the acquisition,” she said. “We are seeing quite a few mergers where they are offering their own stock as part of the deal.”
She added: “The Australian dollar is strong because of the economy and the resources we have here; and that in its self will bring in more M&A activity.”
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