Mergers and acquisitions activity will probably gain momentum in the coming months as European companies get the confidence to embark on transactions, said investment bankers at Bank of America Corp. and Barclays Plc. (BARC)
Mark Warham, head of Europe, Middle East and Africa mergers at Barclays, Luigi Rizzo, who oversees EMEA M&A at Bank of America and Chris Ventresca, global co-head of M&A at JPMorgan Chase & Co. (JPM), said at the Bloomberg Dealmakers Summit in London today the recent stability in the European economy should spur companies to acquire and sell assets in 2014.
“In recent months, things got a little bit more busy, a little bit more optimistic,” said Warham. “There’s an increased level of dialogue, and I would expect it to lead to increased transactions next year.”
The volume of takeovers in the third quarters climbed 42 percent to $674 billion this year from a year earlier, according to data compiled by Bloomberg. Vodafone Group Plc (VOD)’s $130 billion proposed sale of its 45 percent stake in Verizon Wireless to Verizon Communications Inc. in September led to a jump in deals in the telecommunications and technology industries.
Companies on European exchanges raised about $17 billion in initial public offerings this year, compared with $10 billion in the same period last year, as strengthening economies drew investors, data compiled by Bloomberg show.
“We’ve seen a lot of divestments in the U.S.,” said Pip McCrostie, global vice chairman for transaction advisory services at Ernst & Young LLP. “I’m seeing that trend moving toward Europe with the confidence rising -- we’re starting to see some momentum there. It’s all on condition of no major geopolitical issue arising.”
Bank of America’s Rizzo said that there’s “a fair amount of interest” in Europe.
“The equity and M&A markets tend to feed into each other,” he said. “There’s a number of international companies that look at Europe and think there maybe opportunities.”
The euro-area recovery is economy showing signs of strengthening after emerging from a recession. A gauge of services, based on a survey of purchasing managers by London-based Markit Economics, climbed in September to the highest in more than two years. In Germany, business confidence probably increased in October, a Bloomberg survey shows.
“As people are feeling the European economy stabilize, you will see more companies willing to make that investment, taking that longer-term horizon view,” said JPMorgan’s Ventresca.
The pace of European transactions spurred by private-equity firms is also set to accelerate, according to John Huwiler, global head of mergers at Jefferies Group Inc. They are also looking for investment in southern Europe, he said.
“I think private equity is ready to get back in the buying game” in Europe, he said.
A number of large and creative deals this year underscore how M&A is picking up, said Gregg Lemkau, global co-head of mergers and acquisitions of Goldman Sachs Group Inc. He cited Applied Materials Inc.’s all-stock deal for Tokyo Electron Ltd. and Verizon’s deal with Vodafone.
“Those are all relatively groundbreaking things in the M&A world,” Lemkau said.
The positive investor reaction to recent large transactions could spur more takeovers, and the underlying conditions for dealmaking are “phenomenal,” he said.
“Shareholders are saying deploy this capital and find growth,” he said.