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FX Due Diligence

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Too often, FX hedging programmes are only reviewed after a turbulent period where they failed to mitigate FX risk. In fact FX policy needs continuous attention and refinement to protect the business.

Both private equity funds and corporates should be consistently revisiting their policy to ensure optimal hedging strategies.

That said, change of ownership often creates an opportunity to review the existing FX policy. At the very least, a PE house should be fully aware of the FX risk in a potential investment and how it is currently managed, if at all. 

When conducting FX Due Diligence work on a potential investment for a Private Equity house investor, we evaluate the business’s FX exposure and its potential impact on key metrics (EBITDA, cash flow, financial ratios etc.), ensuring that the investor is aware of the exposure.  

Post acquisition we often work with the investee company, assisting in formulating/improving the hedging strategy and assessing its performance. Optimal FX management necessitates working within credit constraints and around the inevitable fallibility of forecasts, whilst also considering natural hedges.

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