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European companies are showing a greater appetite for US, versus EU, companies for acquisitions, given the country’s stronger growth prospects and cost competitiveness, Moody’s Investors Service said in a special comment. In the first ten months of 2014, acquisitions by European companies hit $788 bln, the highest since 2008; with a notable shift towards US targets, according to the report, entitled “Better US prospects spark heightened interest by European companies.”

“The attraction of US companies reflects the US’s stronger growth prospects than the euro area, and its cost competitiveness,” said Richard Morawetz, co-author of the report. “German companies, in particular, have led the acquisition of US assets with a number of high-profile transactions, including Merck KGaA’s $16.9 bln offer for Sigma-Aldrich Corporation.”

This is the first year in the past decade in which North America has overtaken Europe as the primary destination for German M&A activity.

Moody’s notes that rating actions on these larger acquisitions have often been negative, reflecting the largely debt-funded nature of the acquisitions and the negative implications for credit metrics. However, the agency expects that the transactions will bring benefits to the acquirer over the longer term, such as better earnings growth and lower production costs. While further appreciation of the US dollar would raise the cost of acquisitions, this would be more relevant for companies aiming to use the US as an export base rather than for those seeking to take advantage of higher growth in that market.