(Bloomberg) -- Dealmakers are hoping the record plunge in the pound and a slumping euro will lure American bargain hunters to Europe, helping ease the global slowdown in mergers and acquisitions.

“Given the seismic shift in the dollar in the last six months, we are certainly seeing more US acquirers targeting assets in Europe,” said Louise Wallace, head of the corporate and M&A group at law firm CMS. “Whilst currency is just one of many factors, the purchasing power of the dollar does make European targets, and UK targets in particular, look very attractive.”

Sterling dropped to an all-time low this week, taking it closer to parity with the dollar, while the euro fell to its weakest level in two decades against the greenback. The slump in British stocks has also made potential targets cheaper and could entice foreign buyers, according to advisers and strategists.

The FTSE 350 Index has lost more than $300 billion in market capitalization since Sept. 5, when Liz Truss was confirmed as leader of the Conservative Party, setting her up to become the next prime minister. The rout in the pound and UK bonds was exacerbated this week by the tax-cutting and extra borrowing announced by Kwasi Kwarteng, her chancellor of the exchequer.

M&A advisers are in need of some good news, given the global slowdown in deals triggered by recession risks, rising rates, tightening credit and the energy and cost-of-living crises. With just over $666 billion worth of transactions between July and September, volumes are on track for the worst quarter since early 2020, when Covid-19 brought dealmaking to a halt. 

“Cross-border activity has been lower than usual, but a bigger reason for lower international transactions is Covid,” Stephan Feldgoise, co-head of global M&A at Goldman Sachs Group Inc., said in a recent Bloomberg TV interview. “We haven’t yet recovered since that slowdown. Recent currency shifts could actually help us climb out, given the dollar’s strong position, but it hasn’t played a big role yet in causing international transactions to pick up.”

Identifying Targets 

It often takes about six months for currency swings to trickle through to deal volumes, advisers said. U.S. purchases of European targets have fallen about 30% to $230 billion so far this year, led by a slowdown in France, Germany and the UK, data compiled by Bloomberg show.

One top Wall Street firm has started running the numbers to identify listed European companies that their transatlantic colleagues can pitch to US clients, a banker working on the project said this week.

To be sure, foreign buyers are still shying away from countries in continental Europe, given the risks presented by Russia’s invasion of Ukraine and the impact on energy and industry in countries like Germany. And buying British targets could expose purchasers to economic uncertainty and a currency-related hit to any UK earnings repatriated to the US.

“We expect inbound interest for certain sector leaders and end markets to pick up and we’re seeing that already in the UK, but less in continental Europe,” said Birger Berendes, co-head of EMEA M&A at Bank of America Corp. “If you’ve set your sights on a target already, FX might drive the momentum, but that’s never the sole reason. There needs to be strategic merit.”

Cross-Border Hurdles

Tough financing markets, volatile valuations and the complexity of securing regulatory approval in multiple countries present other hurdles for transatlantic deals, the advisers said. And boards at targeted companies may reject bids seen as opportunistic. Some of these factors have already played a role in the collapse of some recent deals.

US buyout firm Thoma Bravo abandoned a takeover of UK cybersecurity provider Darktrace Plc earlier this month. And Lone Star Funds pulled the plug on the purchase of Bank of Cyprus Holdings Plc on Tuesday. 

However, in recent days there were several UK inbound deals. US consulting firm Tetra Tech Inc. agreed to buy RPS Group Plc and Energy Capital Partners LLC salvaged its deal for waste-management company Biffa Plc, but only after cutting the price in a difficult funding environment.

Some M&A advisers are even telling their European clients to consider American targets to increase their exposure to a more stable economy. “We have some well-capitalized corporate clients in Europe that are looking into the U.S. despite FX disadvantages,” Berendes said.

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