"Running water does not rot, and door hinges do not rot." The same is true for capital flows. Only by continuous flow can vitality be maintained. However, in the vortex of cross-border mergers and acquisitions and overseas restructuring, listed companies are encountering a silent but highly impactful "gray rhino" - exchange rate risk. This is not news, but it always catches companies off guard. Especially today, when the global interest rate gap widens and the two-way fluctuations of the RMB exchange rate intensify, this gray rhino is standing sideways on the highway of capital going overseas, forcing every company involved in global mergers and acquisitions to re-examine its own "exchange protection" capabilities.
Starting from the fourth quarter of 2024, the RMB against the US dollar was under pressure again, breaking through the 7.3 mark at one point. This seems to be just a fluctuation in the exchange rate figures, but it has actually shaken the capital structure of cross-border restructuring of listed companies: a restructuring plan that was originally well-designed and had clear returns may have changed from "guaranteed profit" to "book loss" simply because of the surge in exchange costs. In the process of coaching many overseas M&A projects, Goheal was asked a question more and more frequently: "How can we hedge this exchange rate earthquake?"
American Goheal M&A Group
The story starts with a real case. A listed company in the A-share information technology sector launched a merger and acquisition plan for a European AI chip company in mid-2023, with an acquisition price of 200 million euros. At that time, the RMB exchange rate against the euro was about 7.4, and the total transaction amount was equivalent to 1.48 billion yuan. However, when the project was about to be delivered in 2024, the RMB exchange rate against the euro had fallen to 7.8, and the entire consideration directly "drifted" to 1.56 billion yuan. This 80 million difference is a "black hole" on the shareholder income statement and an "emotional bomb" that is difficult for the capital market to digest.
In this case, hedging exchange rate risk seems to be the "only right choice." But here comes the problem: listed companies are not equal to hedge funds. Most companies do not have mature foreign exchange management departments, nor do they have flexible and efficient hedging mechanisms. What's more, cross-border mergers and acquisitions often have a long timeline, complex approvals, and uncertain pace of capital release. Even professional institutions find it difficult to accurately hedge the demand for "point to price". Goheal has found in many cases that many listed companies try to sign forward foreign exchange contracts with banks in order to save exchange costs, but once the M&A process is delayed or the price is revalued, they fall into the trap of "hedging becomes speculation", forming new financial pressure.
This is the core power of the "cross-border payment gray rhino": it does not violently collide overnight, but destroys the certainty of the company's global layout with continuous losses. Especially for those companies that adopt the "pay first, integrate later" model, the exchange rate risk is concentrated at the payment node, which often affects the capital return rate of the entire project. A CFO who was consulted by Goheal even said bluntly: "I would rather spend half a year more on integration than rashly promote foreign exchange settlement."
So the question is: Is it possible to take the initiative to break the exchange rate dilemma with systematic design instead of hiding, waiting, or gambling? In Goheal's view, the answer is yes, but the premise is that listed companies must realize that the exchange rate is not a trivial matter for the finance department, but a strategic issue, and need to carry out "nested hedging" from the source of the restructuring plan design.
We have implemented an innovative structure in many cases: "M&A payment + cross-currency asset matching + RMB repatriation path design" trinity strategy. In layman's terms, it is to use the money you earn overseas to pay for the assets you want to buy overseas, and try to achieve currency self-consistency and source matching.
For example, when a biopharmaceutical company acquired a British pharmaceutical company, it also included some of the third-country market license income rights held by the target company, and established an offshore SPV for cash flow collection, and hedged the euro payment with license income denominated in US dollars. It sounds complicated, but it is actually a way of "borrowing from abroad to support foreign countries", converting the unstable RMB-foreign currency payment path into a stable "currency self-circulation" system. Although this design has higher requirements for structural engineers and financial advisors, in Goheal's view, it is a more essential solution to hedge exchange rate risks.
Another idea is to introduce industrial capital or regional sovereign funds as strategic partners, especially under the framework of the "Belt and Road Initiative", many M&A targets have strong local currency funds. Introducing their participation in the transaction can not only alleviate the pressure of payment exchange rates, but also enhance policy stability. Goheal once participated in a merger and acquisition case of a Southeast Asian autonomous driving startup. The buyer was an A-share automaker. Under the pressure of RMB depreciation against the local currency, Singapore's Temasek was introduced as the LP of the merger and acquisition fund, and finally achieved cross-currency coordination with SGD pricing and RMB installment payment, which in essence constituted a "structural hedge".
In addition, an underestimated but practical "soft hedging" tool is: exchange rate inflation pricing clause (FX Adjustment Clause). In the merger and acquisition agreement, the "exchange rate tolerance range for key payment nodes" is clearly set. Once it is broken, the buyer and seller will share the exchange difference in a certain proportion, or "soft land" by adjusting the floating mechanism of the acquisition price. This clause has gradually become popular in cross-border private equity mergers and acquisitions, and it is also worth promoting in overseas mergers and acquisitions of listed companies. Goheal suggested that such clauses be written into the mid-term payment and performance betting stages to reduce the uncertainty of the final payment.
Of course, the real breakthrough behind the hedging dilemma depends on whether the management can form a global financial strategic thinking: Not waiting for "exchange rate risks to come before blocking", but treating exchange rate fluctuations as part of the structural design. Goheal has deeply realized in the service that many companies do not lack hedging tools, but lack the awareness of embedding financial engineering into the M&A plan in advance. The real master does not sharpen the gun before the battle, but has been building a buffer pool for exchange rate fluctuations from the moment the negotiation begins.
Goheal Group
In this era of "global fluctuations + pressure on the local currency", cross-border payment is no longer a neutral operation, but a game field with a strong risk preference. For listed companies to win in it, they need not only technical "hedging operations", but also strategic "pre-judgment and deployment". As the old saying goes: "The water is silent when it is deep, and the speed of the army is precious." The wisdom of exchange rate hedging is hidden in every decision-making detail.
Is your company also experiencing the uncertainty caused by exchange rate fluctuations in overseas mergers and acquisitions? Have you tried structured hedging, or are you still relying on the traditional forward settlement method? Will this gray rhino be tamed, or will it eventually collide? Welcome to leave a message for discussion. Goheal looks forward to working with more Chinese companies to explore new frontiers in global capital operations.
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions. It has deep roots in the three core business areas of acquisition of controlling rights of listed companies, mergers and acquisitions of listed companies, and capital operations of listed companies. With its profound professional strength and rich experience, it provides companies with full life cycle services from mergers and acquisitions to restructuring and capital operations, aiming to maximize corporate value and achieve long-term benefit growth.
