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A renewed optimism surrounds European dealmaking, according to VMS and Mergermarket survey

Dealmaking appetite in Europe has seen a swift turnaround following the shock of last year’s Brexit vote, according to the fifth edition of the European M&A Outlook, published by CMS in association with Mergermarket.

The report canvassed the opinions of 230 Europe-based executives, from corporates and private equity firms, assessing dealmaking sentiment for the European M&A market in the year ahead.

Last year’s survey, conducted in the immediate aftermath of the Brexit vote, saw dealmakers express an unprecedentedly gloomy view of European M&A activity, with 66% expecting activity to decrease over the forthcoming year and just 24% anticipating an increase. This year’s respondents display a more positive outlook. A clear majority (67%) expect European M&A activity levels to increase while just 5% of respondents anticipate a slowdown.
 
Dealmakers seem to be adapting to a “new normal” in European M&A activity. Stefan Brunnschweiler, Head of the Corporate/M&A Practice Group at CMS, comments, “The mood among dealmakers is markedly different in 2017. While acknowledging some of the challenges they face, respondents are largely optimistic about dealmaking prospects for the coming year, with many suggesting they are ready to take advantage of opportunities stemming from dislocations that result from Brexit and from a return to economic growth in the eurozone.”
 
Indeed, M&A in Europe shows some signs of stabilisation. According to Mergermarket data, M&A deal value in H1 2017 saw a sharp increase in value over the same period a year earlier, rising a third (33%) to EUR 443bn.
 
Kathleen Van Aerden, Head of Research EMEA at Mergermarket says, “European M&A in the first half of 2017 shows positive signs of recovery, with momentum gathering as we move through the year. The EUR 246bn total value recorded in Q2 2017 was up 25% on the previous quarter and was higher than any quarter in 2016.”
 
Martin Mendelssohn, Corporate Partner at CMS in the UK, adds: “The UK has defied the gloomy predictions of 2016 – and once again led dealmaking activity across Europe in H1 2017.  The cheaper pound continues to drive investment in the UK with notable interest from US and Asian investors alike.  We all know that the Brexit negotiations will be complex and protracted, but that knowledge has not stopped the appetite for UK dealmaking.”
 
According to the survey, large transformational deals are expected to increase. In line with the rise of larger EUR1bn+ deals seen in the first half of 2017, two-fifths of corporates and nearly half of PE firms are seeking out large transformational deals over the next year.
 
Executives surveyed also feel that European financing conditions are favourable, and this will drive deals over the next twelve months. An overwhelming majority (88%) of respondents expect similar or more favourable financing conditions over the coming year.
 
Overseas buyers have been eyeing the European market with interest, with four of the top ten European deals in H1 2017 led by bidders located outside the EU. Respondents expect this trend to continue, with 90% saying they expect an increase in the number of European M&A deals involving non-European buyers and 60% anticipating an increase in value over the next 12 months.
This renewed dealmaking confidence on the continent looks set to translate into activity, with 66% of respondents this year expecting to engage in M&A, including acquisitions, divestments or both over the coming 12 months, up from 46% last year.

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