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More mergers and acquisitions expected in Europe

Almost half of M&A executives in Europe expect a rise in transactions over the coming year, with the German-speaking countries remaining the driver of the market.

That is the conclusion of the M&A Outlook study, for which international commercial law firm CMS surveyed 225 representatives of companies, private equity houses and law firms in conjunction with analysis provider Mergermarket.
 
"The economy is slowly recovering from the financial crisis. This new growth also appears to be giving the M&A market a long-anticipated boost," says Thomas Meyding, CMS partner in Stuttgart and head of the CMS corporate group.
 
Although European mergers and acquisitions were still at their lowest level for three years in the first half of 2013 with regard to number and volume, there is now a very clear feeling that a corner has been turned. According to the survey, only 10 per cent believe there will be a fall in European M&A activities, 42 per cent think that the level will remain unchanged, while a full 48 per cent expect a rise in activity.
 
Respondents identify three main factors behind rising activity on the buyer side: increased interest from outside Europe (62 per cent), a growing number of undervalued target companies (57 per cent), and particularly well-funded players (52 per cent).
 
"The buyer profile continues to change – strategic investors with deep pockets are particularly active in the mid-market segment," says M&A expert John Hammond, a partner with CMS in Stuttgart. "The market is also seeing more and more new players from the Asia-Pacific region, such as China and Korea, but also Russian and US investors."
 
Eighty two per cent of survey participants expect more cross-border transactions. On the seller side, M&A managers believe that new opportunities will emerge due in particular to available capital in markets experiencing rapid growth (69 per cent) and distressed sales (68 per cent). The biggest growth sectors are reckoned to be technology, media and telecommunications (41 per cent), energy and mining (38 per cent), industry and chemicals (37 per cent), pharmaceuticals, medicine and biotechnology (35 per cent) and financial services (34 per cent).
 
Sentiment in Germany, Austria and Switzerland is extremely optimistic. More than half of the respondents in this region think that deals will increase in the next twelve months or even increase sharply. Only participants in Scandinavia and Eastern Europe are more confident. The greatest scepticism is shown by M&A executives in the Iberian peninsula, where economic conditions remain tough. Only 24 per cent of respondents in the region expect an increase in activity. In line with their own market assessment, the German-speaking countries remain the driving force behind the wider European market: 28 per cent of respondents rate the German-speaking region as the most active, while almost 60 per cent see the three countries as among the top three most active regions in Europe. This puts them well ahead of the Scandinavian countries, the UK and Ireland.
 
In the case of cross-border transactions within Europe, a large proportion of respondents (around 40 per cent) also view the German-speaking countries as the most active buyers. As a target region for acquisitions within Europe, however, these countries only come fourth, behind Scandinavia, the Balkan countries and the Benelux states. When survey participants are asked to list the regions being targeted by buyers from outside Europe, the German-speaking countries again only rank around the middle.
 
Asked about the reasons for possible sales of companies or individual divisions, German-speaking participants consider regulatory aspects to be by far the biggest driving force in their own countries.
 
"We are seeing a trend towards consolidation, especially in the banking and energy sectors, resulting from a whole host of new regulations for financial institutions and Germany's new energy policy," says Hammond.
 
Overall, around a third of respondents expect a slight improvement in access to finance (with this being particularly true of the German-speaking and CEE countries, at 52 per cent each), although a large proportion (40 per cent) believe that the financing environment will remain largely unchanged. A return of the financial crisis is still regarded as the biggest threat to further growth. Buyers and the banks behind them remain well aware of the risks: problematic due diligence reviews and differing price expectations on the buyer and seller side remain the main possible reasons for failed transactions.

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