DealZone

Noted: Europe SA on the takeover trail?

December 16, 2009

A poll from UBS and the Boston Consulting Group finds a “surprisingly healthy” one in five European companies is likely to make a significant (EUR 500 mln+ in sales) acquisition in 2010. Some of the other key findings:

“Corporates are seeking growth: Strategic and growth-related considerations such as expansion of product offering, access to new geographies and access to new customers and distribution channels were the three most cited drivers of M&A activity, from a choice of 12 drivers.

“Lack of attractive targets and company valuations are main M&A barriers: Lack of attractive targets (cited by 40% of respondents) and, reflecting the speed and extent of stock markets’ recovery, high valuations (cited by 39% of
respondents) were the most commonly cited barriers to M&A.

“Self-imposed financing constraints: Corporates plan to rely on internal financing for deals. 42% of respondents plan to use existing cash reserves or cash flow whilst 23% would use existing debt facilities. Beyond this there is a clear
preference for equity financing (14%) over new bank loans (5%) or traded debt issues (4%). This suggests an upper limit to deal sizes over the next year – consistent with the early stages of other M&A waves.

“Not many mega deals yet: Only 20% of respondents expect a transformational deal in their sector vs. 43% in last year’s survey. This is consistent with (1) a preference for internal funding of deals, (2) product markets not having undergone
the seismic change that many expected a year ago, (3) still relatively moderate risk appetite of senior executives and (4) perceived higher valuations …

“Corporate restructuring outlook: Restructuring expectations are high; 66% of respondents expect more deal-based restructuring in their industry over the next 12 months. “Forced” divestitures and voluntary sales of underperforming
businesses are expected to feature heavily (29% of respondents each).

“Shareholder activism: A significant majority (75%) of respondents expect more pressure from investors, banks and other creditors to conduct more deal-based restructuring in their sectors.

“Return of Private Equity: Higher financial investor involvement is expected, although more as sellers (cited by 54% of respondents) than as buyers (36% of respondents).”

In a linked note, UBS’s “special situations” team also names its top picks for European M&A: Aegis, Basilea, C&C, Croda, Kloeckner, Meggitt, Peugeot, Sonaecom, and Temenos.

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