RPT-Fitch: EMEA Corporate M&A to Remain Muted in 2014, Attractive Targets Identified

Mon Feb 3, 2014 4:21am EST

Feb 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has screened its publicly rated EMEA corporate universe according to key financial, operational and equity factors to identify the 50 rated issuers of most interest to potential buyers in the near term. The report is available at www.fitchratings.com or by clicking on the link above.

Our analysis focuses primarily on quantitative factors driving M&A, rather than assessing the likelihood of strategic acquisitions or the existence of potential acquirers. The list of attractive targets represents companies where we consider financial performance and credit metrics to be ahead of industry peers, with multiples below those of peers. The key factors we analysed include sustainable profitability, cash generation, balance-sheet strength, proven ability to reduce leverage and current market multiples.

The report also discusses M&A trends by market sector. While we expect a slight uptick in strategic M&A in 2014, opportunistic activity will remain rare, driving lacklustre overall M&A activity for EMEA corporates in the near term. A fragile economic recovery in the eurozone and early tapering of the Fed's quantitative easing programme will likely offset slowly rising enthusiasm stemming from a gradual market improvement, as well as rising stock markets. However, sector disparities will persist, with rising structural M&A in the telecoms sector compared with limited activity across pharmaceuticals and natural resources. The telecoms industry is undergoing high levels of strategic and structural M&A, primarily due to increasing competitive challenges and high investment requirements, which drive the need for further industry consolidation. In western Europe, a successful merger between E-Plus and O2 Germany could strengthen M&A activity in serving as a reference for authorities in other markets.

Activity in the pharmaceutical sector will be affected by the patent cliff, notably for AstraZeneca plc, which could embark on mid-large scale acquisitions for drugs in late-stage development or for established brands. In natural resources, we anticipate muted M&A in the mining sectors as cash generation will remain constrained by range-bound commodity prices and lingering demand pressure. However, the focus of oil and gas majors on boosting reserves and production capacity provides a springboard for future deal flow.

Link to Fitch Ratings' Report: EMEA Corporate M&A Event-Risk Screener