Hi everyone,
we are pursuing a potential cross border transaction. The target company is valued in a local currency (due lack of mid and long term forwards and current breakdown of Fisher equation), and then the final value is translated into Euros (or USD). The local currency has depreciated significantly during the last year (mostly due to Corona) and it had a profound effect on the value in USD.
- Current forward rates do not show any recovery in the coming years
- You would expect some recovery down the line, not sure when, not sure how much, etc..
- Even as we speak there is quite a volatility in the FX rate,
How would you deal with this issue?
Would you set some base FX rate, calculate the value in USD, and then add/subtract changes due to current volatility? I have to present that to the board and am thinking what would be the best way to present that in the sense where intrinsic value stops and an, effectively, FX position starts.
How would you tackle the scenario that down the line, may be in 3-4 years, the local currency would recover?
Thanks.
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