Cross-Border M&A: Managing the Gap Between Signing and Completion

A UK acquirer agrees to buy a German business for €40m.

Signing to completion is expected to take four months — regulatory clearance, conditions precedent, a few consents to gather. Standard.

Over those four months, a 5% move in GBP/EUR changes the sterling cost of that deal by roughly £1.7m.

That figure will exceed the entire transaction fee budget. It frequently exceeds the value of the price concession that took three weeks to negotiate. And in many deals, nobody owns it.

Why deal FX gets neglected

It's not incompetence. It's structural.

The deal team is focused on valuation, diligence, structure and legals. The treasury function, if one exists, often isn't in the room until late. Advisers are engaged for their specialisms, and currency usually isn't one of them.

Meanwhile the exposure has three awkward characteristics:

• The amount is known, which makes it feel manageable

• The date is uncertain, because completion timing is genuinely unpredictable

• The transaction is probable but not certain, which makes a plain forward contract risky in its own right

That third point is the crux. Hedge a deal that collapses, and you're unwinding a €40m position into whatever the market has done. You've converted deal risk into trading risk on a transaction you never completed.

So teams do nothing, and hope the market behaves for four months.

The instruments, in order of suitability

Forward contracts. Right once completion is certain and the date is firm. Flexible or window forwards help with timing slippage, which is near-universal in M&A. If the conditions precedent are administrative rather than substantive, this is often the cleanest answer.

Vanilla options. The standard tool where completion is probable but not certain. You pay a premium for the right, not the obligation, to buy at a set rate. Deal completes and the market moved against you — you exercise. Deal completes and the market moved in your favour — you lapse and take the better rate. Deal dies — you walk away, and the premium is the entire cost.

For a €40m acquisition, the premium will look large in isolation and small against a £1.7m swing. It should be a line in the deal cost model, sitting alongside legal and diligence fees.

Deal-contingent hedges. Available on larger transactions from banks and some specialist providers: protection that only applies if the deal completes, with no premium payable if it doesn't. Pricing is embedded in the rate and is meaningfully worse than a vanilla forward, and terms are bespoke. But for a large acquisition with genuine completion risk, it solves the exact problem — and the cost is entirely contingent.

Partial hedging. Hedge the portion of consideration you're most confident about, leave the rest open. Common, pragmatic, and easy to explain to a board.

Timing: the exposure starts earlier than people think

The clock doesn't begin at signing. It begins when the price becomes fixed in the foreign currency, which is often at heads of terms or earlier.

If you've agreed €40m in principle in January and sign in April, three months of exposure have already passed before anyone drafted an SPA.

Two things follow:

• Raise currency at heads of terms, not at signing.

• Consider whether the price should be expressed with a currency mechanism. Some deals fix consideration in the buyer's currency; some include an adjustment if the rate moves beyond a band; some split the difference. All three are negotiable points that are far easier to raise early than late.

Beyond the headline consideration

Deal FX isn't only the purchase price:

• Deferred consideration and earn-outs — foreign currency exposure stretching one to three years past completion, frequently unhedged because everyone moved on

• Escrow and retention amounts — held in one currency, released later, exposed throughout

• Transaction costs — local advisers billing in local currency

• Post-completion funding — intercompany loans, working capital injections

• Ongoing consolidation — the new subsidiary brings permanent translation exposure to the group

Earn-outs are the most commonly missed. A £6m earn-out denominated in euros and payable over three years is a substantial unhedged position that nobody is monitoring because the deal team disbanded at completion.

For advisers

If you're a corporate finance adviser, raising currency early does two useful things.

It protects your client from a variance that can eclipse the value you negotiated on price. And it demonstrates a breadth of thinking that clients notice — particularly when the alternative is the client discovering the issue themselves at completion, when nothing can be done.

It costs one conversation at heads of terms.

The single question

For any cross-border transaction, ask early:

"What does a 10% currency move do to the sterling cost of this deal, and who owns that risk?"

If nobody can answer the second half, the answer is nobody — and the risk is real regardless.

William Fuller, Co-Founder of Orbis Exchange Group contact on 0203 918 5622

Ben James, Co-Founder of Orbis Exchange Group contact on 0203 918 5621