Europe’s executives are more bullish about the European M&A outlook than they were a year ago, according to the second edition of the European M&A Outlook by Mergermarket in association with CMS.
Of the 225 Europe-based corporate executives surveyed, 76 per cent expect that dealmaking will increase or increase greatly, a 28 percentage point increase from last year’s study.
Attitudes about Europe’s economic recovery have improved significantly and the majority believe that the worst is behind us.
Thomas Meyding, head of CMS Corporate Group, says: “Our report echoes the sentiment of increasing market confidence as evidenced by the high level of M&A activity this year and in particular the most recent announcements of major transactions by German companies. Continued financial and political uncertainty, particularly in relation to Russia and Ukraine, may still hold back M&A activity in Europe.”
The top three buy-side drivers of M&A in Europe will be consolidation (57 per cent), increased appetite from foreign acquirers (56 per cent), and cash-rich corporate acquirers (55 per cent).
In the telecommunications sector consolidation is particularly evident: TMT deal volume increased 10 per cent in the first half of 2014, compared to the same period in 2013, and value jumped 34 per cent to EUR66bn. For instance, UK-based Liberty Global, on the back of its EUR18.5bn purchase of Virgin Media in late 2013, announced plans to acquire Netherlands-based media company Ziggo for EUR8bn and UK-based ALL3MEDIA for EUR672m. Through these deals, Liberty Global is looking to extend its geographical foothold across Western Europe, to achieve economies of scale and increase revenue.
“Although deal volume across a number of sectors has seen modest increases, deal value surged. This indicates that more buyers are willing to take calculated risks, and to pay premiums for the right assets. We anticipate that European businesses will continue to put capital to work via acquisitions,” says Kristina Thompson, research editor at Mergermarket.
On the sell-side, the lead drivers of M&A activity are expected to be capital raising for expansion in faster growing areas (67 per cent), distress driven M&A (59 per cent) and non-core asset sales from larger companies (56 per cent). However, there has been a nine percentage point year-on-year drop in the level of activity expected via distressed situations.
The report also reveals that regulatory issues are expected to be the main obstacle to deals, followed by financing difficulties and economic uncertainty.
The largest percentage of respondents believes that Germany is the country which will be most active in terms of M&A activity, followed by the Benelux, Nordics, UK & Ireland. In terms of sector, most respondents (20 per cent) expect TMT to be the most active in Europe over the next 12 months. Industrials and chemicals and energy, mining and utilities are jointly second, at 17 per cent each.
