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Study: Confidence Building in European M&A Market

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Study: Confidence Building in European M&A Market

Perhaps you’ve heard this before…

M&A executives in Europe are becoming more optimistic about deal flow, according to research with 225 practitioners by global law firm CMS and Mergermarket.

Nearly half of the respondents (48%) expect that European M&A levels will increase in the next year; only 10% expect a decrease and the balance anticipate that deal-making figures will remain constant.  

"Our research makes clear that confidence is returning to the European M&A market and many of the fundamentals underpinning the market are stronger than they have been for some time.”Almost a third of respondents (29%) are considering acquisition, whereas more than half (55%) say they are not thinking about M&A.  

"Our research makes clear that confidence is returning to the European M&A market and many of the fundamentals underpinning the market are stronger than they have been for some time,”said Thomas Meyding, Head of CMS Corporate Group.

“The profile of buyers in Europe continues to change and we expect to see more evidence of this as M&A activity picks up.  Strategic investors with strong balance sheets are active in the mid-market, particularly with bolt-on acquisitions.  New investor groups from Asia-Pacific, particularly Chinese and Korean, are increasingly turning to Europe as part of their expansion plans. Russian and US investors are also more prevalent now than they have been over the last three years, especially in Western Europe."

M&A executives expect Northern Europe will be the most active for deals over the next year, with over a quarter (28%) of respondents pointing to German-speaking countries and 18% to the UK and Ireland as the busiest.

On the buy-side, deal-flow is expected to be driven by increased appetite from foreign acquirers (62%), followed by the availability of undervalued targets (57%) and cash-rich operators (52%).  On the sell-side, practitioners anticipate the biggest catalysts to deals will be capital raising for expansion in fast-growing markets (69%) and distress sales (68%).

The top five sectors for M&A are expected to be:  TMT (41% of respondents); Energy, Mining and Utilities (38%); Industrials and Chemicals (37%); Pharma, Medical and Biotech (35%); and Financial Services (34%).

"All the factors for a healthy M&A market appear to have come together, namely a lower cost of capital, high corporate cash balances, limited organic growth opportunities and more effective valuation levels.”Asia-Pacific is the number one regional target for European companies considering acquisitions outside of the continent (35% of respondents), followed by North America (31%).

Most respondents (82%) expect cross-border M&A will increase into Europe in the next year, with Asian-Pacific (45%) and North American (40%) companies being the most active.

"All the factors for a healthy M&A market appear to have come together, namely a lower cost of capital, high corporate cash balances, limited organic growth opportunities and more effective valuation levels,” said  Martin Mendelssohn of CMS London.

“The recent period of relative stability and growth in the UK has generated a more ‘can do’ attitude amongst financial and trade investors alike.  Although the first half of 2013 was disappointing, I expect the results in the second half of 2013 to reflect the greater optimism and confidence in the UK as demonstrated by the latest figures for UK targeted M&A in Q3 2013, which show a 20% increase in value from the previous quarter and a stronger performance in value and volume compared with the same period in 2012."

In terms of financing, the largest share of respondents (40%) expects the environment to remain the same over the next year.  Nearly a third (32%) think obtaining funding will be slightly easier, with the most confident regions being the German speaking countries and CEE, including Russia and Ukraine (both 52%) compared with 36% in the UK and Ireland.

The sovereign debt crisis is the biggest threat to European business, according to respondents, followed by weak domestic demand.

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