* 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 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
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
"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
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 &
"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
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.