Foreign investors fuel more M&As
NEW YORK – Figures that point to an increase in merger and acquisition activity the past few months might seem to indicate that the credit crunch is easing and Wall Street is starting to return to a more normal business cycle.
But when one considers that recent headline-grabbing deals have mostly involved foreign companies bidding for industry icons like Genentech Inc. and Anheuser Busch Cos., such an optimistic view might be visible only through a pair of “beer goggles.”
In reality, the rise in M&A, like recent investments in other U.S. industries such as financial services and real estate, more likely reflects foreign companies taking advantage of the weak dollar than it does a loosening of credit.
Announced U.S. merger and acquisition volume in July jumped to $186.99 billion, the fifth straight month of growth and highest total since a year ago, according to Dealogic.
In addition to the M&A activity, billions have flowed from the Middle East, China, South Korea and Singapore into U.S. financial companies to help keep them afloat, and billions more have poured into U.S. real estate as foreign investors have bought up icons like New York City’s Chrysler Building.
Why is so much foreign cash heading to U.S. shores? “Obviously the number one thing is the weak dollar,” said Chris Johnson, chief executive of Johnson Research Group in Cleveland.
Bart Narter, senior vice president of Celent’s banking group in San Francisco, said that during a recent stay in New York, he saw many European tourists shopping for bargains. “Investment bankers are doing the same thing due to the exchange rate,” he said. “They are looking at America and saying, ‘This is a corporate bargain.’ ”
Some might question whether it matters that foreign companies are buying such high-profile U.S. corporations. Belgian brewer InBev SA, for instance, has pledged not to shutter any of Anheuser’s U.S. breweries, so the deal won’t have a big impact on jobs here.
In the banking industry, moreover, foreign infusions of capital have helped stabilize the industry, Narter added. “I think that’s actually good for America, spreading the risk around. From that standpoint, I think it’s a good thing that anybody is investing in America’s banks.”
Johnson said he doesn’t think most foreign deals generate concern these days, given the globalization of the economy. “Look at the activity of the individual investor going abroad,” he said. “Someone can go out and buy an (exchange traded fund) that represents Brazil or China.”
That doesn’t mean all foreign investments will be equally welcome, said Jack A. Albin, chief investment officer at Harris Private Bank in Chicago, pointing to the backlash three years ago when a Dubai-based company tried to invest in U.S. ports. “The overall trend is probably fine, but there will be that off deal that just won’t get done for just headline reasons.”
Albin even suggested that foreign money might point the way for some U.S. investors.