Weak economic indicators, uncertainty surrounding Brexit and growing protectionism in global trade have contributed to a shift in sentiment in the M&A community and the beginning of a downturn in dealmaking activity, according to the seventh edition of the European M&A Outlook, published by CMS in association with Mergermarket.
The report is a comprehensive assessment of dealmaking sentiment in the European M&A market. It has canvassed the opinions of 230 senior Europe-based executives, from corporate and private equity firms, about their expectations for M&A in the year ahead.
Over the last 12 months, European M&A value has dropped 22 per cent year-on-year to EUR 652.2bn. The market witnessed several cancelled deals, including the mooted Deutsche Bank and Commerzbank tie-up in Germany, Asda and Sainsbury’s in the UK, and French train manufacturer Alstom with the rail arm of German conglomerate Siemens.
The slowdown in deal activity – together with wider economic and market concerns – have taken a heavy toll on dealmaker sentiment about the outlook. Executives fear the climate will worsen with nearly half (45 per cent) of respondents not considering M&A at all, up from 28 per cent last year. Furthermore, 73 per cent of respondents expect the level of European M&A activity to decrease or remain the same over the next 12 months.
While the outlook for M&A is broadly negative, executives expect an upsurge in distressed M&A and restructurings arising from deteriorating economic conditions in the coming year. Respondents almost unanimously (95 per cent) expect distressed M&A to rise, with 94 per cent believing that restructurings will increase in number.
Stefan Brunnschweiler, Head of the Corporate/M&A Practice Group at CMS, says: “Corporates and private equity firms are adopting a more prudent approach, meaning we’re going to see fewer mega-deals. It will also take longer to complete deals, as buyers take more time over the due diligence process.
“But notwithstanding the geopolitical and market uncertainty, there are still plenty of opportunities to do deals. Distressed M&A is set to increase, and emerging technologies and IP continue to present attractive investment opportunities.”
Although the market is subdued, there is still appetite to invest if the right deals come along. Virginia Garcia Martinez, Transactions Editor, EMEA at Mergermarket, says: “Buyers are becoming more particular about the transactions they will do, favouring deals in fast growing sectors that have upside potential but also some cushion against downside risks. Of the ten largest deals in H1 2019, for example, two were in the resilient pharma, medical and biotech (PMB) sector, and three were in the hot technology, media and telecommunications (TMT) space, most notably Sunrise Communications’ EUR5.5 billion purchase of UPC Switzerland from Liberty Global.”
