When FX Certainty Is Required Before Deal Certainty Exists
Cross-border M&A rarely fails because FX risk is misunderstood.
It fails because FX commitment is required before it is clear whether a transaction will proceed.
In competitive auctions, acquirers are forced to demonstrate fixed economics weeks or months before exclusivity, regulatory clearance, or binding documentation. FX exposure is real from the moment a bid is submitted. The obligation to transact is not.
Most institutions respond in one of two ways. They hedge early and accept material break risk if the deal fails, or they delay hedging and accept FX uncertainty that weakens bid credibility. Both approaches misalign FX commitment with how deal probability actually evolves.
This is not a behavioural issue. It is structural.
Deal certainty moves in steps. FX markets move continuously. Standard hedging frameworks ignore this mismatch.
Contingent FX forwards exist to address it.
A contingent FX forward allows an acquirer to pre-agree an FX rate while deferring the obligation to transact until a defined deal milestone is reached. If the transaction proceeds, the hedge activates automatically and behaves like a standard forward. If it does not, the hedge never activates and unwind losses are avoided.
The structure is not an option. The buyer gives up discretion and upside participation in exchange for materially lower cost and alignment with deal reality.
Many FX hedging failures occur even when currencies behave broadly as expected. Break risk, timing mismatch, collateral calls, and governance friction convert FX exposure into funding and decision risk as transactions progress. The hedge may “work” on paper while failing to support deal execution.
This practitioner paper sets out how contingent FX forwards function in live transactions – legally, economically, operationally, and under collateral agreements – and where they succeed or fail in practice. An anonymised, illustrative case study shows how experienced acquirers use conditional FX commitment to compete effectively in cross-border auctions without taking unacceptable break risk.
Read the practitioner paper
Contingent FX Forwards in Cross-Border M&A – Locking FX Certainty Without Break Risk