As the U.S. economy begins to show signs of rebounding, there is a run on American companies by foreign buyers -- and no, it's not a fire sale.
In fact, one of the reasons foreign investors are so interested in buying American companies right now is because American companies are currently seen as an excellent investment.
There are a multitude of factors that determine the investment quality of U.S. firms. These factors are constantly shifting, based on both U.S. domestic and international economic conditions. With the U.S. slowly emerging from the 2009-2010 recession, the convergence of several economic factors is causing foreign companies to take note of American business opportunities.
Currency Exchange Rates
Currency exchange rates play a big role in the international business-for-sale marketplace. For some time, the American dollar has performed weakly against the euro and other currencies. But because the weak dollar coincided with the global recession, international entrepreneurs were hesitant to buy American companies. Now that there are signs that the U.S. economy is emerging from the recession, the dollar has regained its footing and is in a strong position against other currencies – typically a disadvantage for international buyers. However, since international buyers are concerned the dollar may gain even more against the euro, they are pulling the trigger on American acquisitions now.
Low Valuations for U.S. Companies
Currently there is a widespread international belief that American companies are undervalued. In fact, there may be a lot of truth to that idea given the impact the recession had on business valuations. Although some devaluation was warranted, the discounts may have gone too far, making American companies a hot commodity for international investors and global entrepreneurs interested in expanding into U.S. markets.
The world is getting smaller and flatter. In today's economy, globalization is no longer a buzzword – it's a way of life. By diversifying their business with American acquisitions, international companies can stake a claim in the global economy and insulate themselves against regional downturns or trade barriers.
Baby Boomer Retirement
Another reason that U.S. companies are attractive to international buyers right now is that there are a lot of companies on the U.S. market. As the baby boomers enter their retirement years, the number of businesses for sale has skyrocketed. More supply, means less demand – and better prices for foreign buyers.