* Companies still wary of large deals
* European M&A volumes down by a third this year
* July best month but still well below pre-crash level
By Sophie Sassard
LONDON, July 30 (Reuters) - A flurry of mergers and acquisitions in Europe this month, culminating in the $35 billion mega merger between global ad agencies Omnicom and Publicis, marks a gradual pickup in deals rather than a new wave of big ticket transactions.
In the wake of the 2007-09 financial crisis, companies are wary of embarking on large deals that could strain their balance sheets and their relations with investors, many of whom were burnt by overleveraged takeovers during the boom.
Even with the Omnicom and Publicis tie-up, the largest deal in Europe this year, European M&A volumes are down by a third so far this year, according to Thomson Reuters data.
July's figures, which also include Vivendi's $8.2 billion sale of a majority stake in videogames publisher Activision, mark the best month yet for deals in Europe with a total of $102.8 billion, but that is still nearly two thirds below July 2007 before the finanial crisis tore up the market.
"One swallow does not a summer make," said Olivier Pecoux, co-chief executive of the Rothschild Group, Publicis' adviser on its merger with Omnicom, as well as the sole adviser to Essilor in its $1.73 billion acquisition of Transitions in the United States.
Some companies such as Omnivision and Publicis are pursuing deals to cope with rapid change in their industries or as a response to consolidation in the case of Spain's Telefonica and Netherlands-based KPN combining their German units in a $10.7 billion deal. But many others are put off by the difficulties of agreeing a transaction.
"We are working on a number of transformational transactions at the moment as many companies feel the need to adapt to a new environment while the key ingredients for M&A are there too. However, it remains a very challenging market for dealmaking and a lot of deals still fail," Pecoux said.
British water company Severn Trent recently rebuffed a $8.2 billion takeover bid from Canadian Borealis in a disagreement over price and CVC's attempt to take UK-based gaming firm Betfair private fell apart after failing to agree on price and strategy.
Last year, Germany opposed a tie-up between aerospace groups EADS and BAE Systems in what would have been a $45 billion merger.
Such failures make CEOs wary.
"This does not give confidence to CEOs to get out and push forward with M&A deals," said Gilberto Pozzi, head of European M&A at Goldman Sachs.
"Now, what it very important for market confidence is to close the recently announced deals."
Senior advisors do not expect M&A activity to go back to pre-crisis levels anytime soon.
"M&A was never gone. It's just that the volume of deals have reset to a lower level in the wake of the crisis.", said Richard Cranfield, chairman, global corporate group at law firm Allen & Overy.
"People have long memories. No one wants to get too leveraged for instance, and that's something people scrutinize a lot when it comes to M&A."
Boards, shareholders and executives have begun subjecting transactions to greater scrutiny since the financial crisis exposed the danger of overpaying for assets.
Companies will often compare deployment of acquisition cash with more conservative and popular actions such as buybacks and dividends, bankers said.
On top of this, regulation is also getting tougher, especially in Europe and in certain sectors such as telecoms.
"If the checklist for a deal was 3-4 boxes to tick in 2007, it is more 6-7 now." said Kasim Kutay, co-head of Europe at Moelis & Company, which was sole adviser to Omnicom on the merger with Publicis.
CROSS BORDER BOOST
Recession-hit Europe has, however, become attractive as buyers in the United States and emerging markets are increasingly seeing opportunities in the regions's relative low valuations.
U.S. companies only accounted for 11 percent of takeovers of European firms so far this year compared to 21 percent last year, according to data compiled by TR. But bankers expect the share of U.S. acquisitions into Europe to grow as concerns among American CEOs over the eurozone crisis are gradually receding.
"Companies continue to review opportunities to accelerate their earnings growth and improve their portfolios of businesses. It is therefore unsurprising to see companies transacting when there is an opportunity and alignment of views on value, for example in Europe we have again seen activity from U.S. companies buying," said Mark Warham, Vice Chairman, Head of EMEA, M&A at Barclays.
Recent examples include U.S. generics firm Perrigo's $8.6 billion acquisition of Ireland-based Elan, on which Barclays advised Perrigo, and General Motors taking a seven percent stake in Peugeot last year.
More could come with AT&T 's rumoured interest for Spain's Telefonica and speculation that Verizon could buy Vodafone's stake in their joint-venture Verizon Wireless.
Players from emerging markets have also shown growing appetite for European companies with Carlos Slim's America Movil taking a 28 percent stake in Dutch telecommunications firm KPN last year, Russian Railways last year buying French logistics group Gefco for 800 million euros ($1.06 billion) and Hutchison Wampoa recently looking at a controlling stake in Telecom Italia.
Meanwhile, European companies also feel the need to diversify away from their low-growth home market and will increasingly seek acquisitions in the United States, Latin America and Asia, said Allen & Overy's Cranfield.