It has been a record year for merger and acquisition (M&A) activity throughout much of the world. European companies, however, have been bucking the global trend, as they struggle with, among other obstacles, a sluggish economic recovery.
Smaller appetite Bloomberg’s Manuel Baigorri lays out the facts, saying that Europe’s total deal volume is at its lowest in 17 years. He adds: “Acquirers agreed to spend $763.3bn for European targets so far this year, about 22% of the $3.49tn in total. That’s down from 41% in 2007, the previous peak year for deals.”
$4.3tn
The global value of M&A in 2015Baigorri cites tighter regulation and a slower economic recovery as reasons why European companies have had a smaller appetite for M&A. But he also explains why the US has had such a successful year in comparison. He quotes Andrew Ballheimer, a partner at Allen & Overy in London: “Mega-deals rely on the availability of cheap debt and deep capital markets, so you would expect the US to perform well.”
The biggest deal of the year was North American pharmaceutical company Pfizer’s $160bn mega-merger with Dublin-based Allergan. Baigorri says this transaction was helped by “creative deal structuring”, whereby the smaller Allergan was “technically buying Pfizer, making it easier for the drug giant to relocate its headquarters to a more attractive Irish tax base”. While this may sound like a boost for European M&A, the deal was still a North American transaction.
Bloomberg report
Running for the door Over at the
International Business Times, Aditya Kondalamahanty gives a picture of the broader macroeconomic situation. The global value of M&A reached a staggering $4.304tn in 2015, beating an earlier record of $4.296tn in 2007. She says that these impressive numbers stem from companies in the US “tak[ing] advantage of cheap interest rates before the Federal Reserve’s impending rate hike in December”.
Kondalamahanty quotes Todd Gordon of TradingAnalysis.com, who says that as the Fed comes closer to raising the benchmark federal funds rate – its first such move in nine years – companies are “running for the door”.
Gordon says: “I do feel like this is a top-out in M&A activity. We'll see if stocks can weather it, but everyone's doing these deals on expectations of higher rates.”
International Business Times coverage
A mixed bagThe situation in Britain seems rather more complex. Writing for
City AM, Emma Haslett says only 31 domestic M&A transactions took place in the third quarter – the lowest number for 46 years.
Haslett points out: “Despite headline-grabbing deals such as Nikkei's £800m acquisition of the
Financial Times, there were just 23 takeovers of UK firms by foreign companies – the lowest figure since the first quarter of 2013.”
City AM article
But a day later, Madeleine Ratcliffe, also writing for
City AM, cited research by EY that seems to tell a rather different story, by looking at the year overall. According to EY, UK M&A activity is at its highest level since 2007, up 90% from last year to £344.4bn.
The article goes on to quote Michel Driessen, EY’s UK & Ireland Transaction Advisory Services Markets Leader: “One of the reasons why the UK has seen a significant uptick in activity [is that] global acquirers have been keen to tap into an improving and relatively stable economy that offers a footprint into the eurozone, North America and beyond.”
Ratcliffe does, however, highlight that the number of UK deals has increased “more modestly”, and that the value of deals in which UK companies have acquired businesses overseas has fallen year-on-year to $104.4bn from $113.5bn.
City AM article
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