Photographer: Daniel Acker/Bloomberg

Europe Left Behind in Record Year for Deals Led by U.S. M&A

  • European share of total deal volume at lowest in 17 years
  • Europe's growth is less than half North America's and Asia's

In a record year for mergers and acquisitions, European companies got left behind.

European targets accounted for the smallest share of global acquisitions in 17 years, according to data compiled by Bloomberg. Acquirers agreed to spend $763.3 billion for European targets so far this year, about 22 percent of the $3.49 trillion in total. That’s down from 41 percent in 2007, the previous peak year for deals.

Compared to U.S. companies, which were the subject of $2 trillion in takeovers so far this year, their peers in Europe have had to deal with a slower economic recovery and tighter regulation for some industries -- such as telecommunications where the European Commission blocked a merger of Danish phone operators -- that makes consolidation more difficult.

“The economic growth recovery in the U.S. has contributed to the acceleration of M&A activity, more so than in Europe,” said Ben Thorpe, a partner at Goldman Sachs Group Inc., the top-ranked M&A adviser for the last six years, according to data compiled by Bloomberg. “Companies have preferred to move fast and acquire in the U.S. ahead of possible interest rate increases.”

The value of European buyouts is also growing at less than half the rate of deals for North American and Asian companies, according to data compiled by Bloomberg. It’s up only 18 percent in Europe -- compared to 41 percent in North America and 59 percent in Asia. That’s even after blockbusters such as Anheuser-Busch InBev SA’s more than $100 billion offer for London-based SABMiller Plc and Royal Dutch Shell Plc’s takeout of Berkshire, England-based BG Group Plc, the biggest oil deal in a decade.

Record Year

Appetite for M&A is at a six-year high, with almost 60 percent of the companies planning to pursue acquisitions in the next 12 months, led by a desire to invest in the U.S., according consultancy firm EY’s Global Capital Confidence Barometer, published in October.

“Mega-deals rely on the availability of cheap debt and deep capital markets, so you would expect the U.S to perform well,” beating out Europe, said Andrew Ballheimer, a partner at Allen & Overy in London.

Part of Europe’s problem is that it’s relatively weak in the sector driving the biggest growth -- technology. Deal volume in the industry has tripled so far this year with about 80 percent of that in North America. This is mainly thanks to Dell Inc.’s $67 billion takeover of EMC Corp., as well as a slew of deals for semiconductor companies.

Europe, lacking a true equivalent to Silicon Valley, specializes in smaller startups. The biggest technology deal for a European company this year was Activision Blizzard Inc.’s offer to buy Dublin’s King Digital Entertainment Plc in a $5.9 billion deal.

Consumer Surge

For so-called non-cyclical consumer deals, which include food and beverage companies as well as pharmaceuticals and accounted for the most volume this year, North American transactions such as Pfizer Inc., Kraft Foods Group Inc. and Cigna Corp. dominated the list of biggest deals and accounted for more than two thirds of the money spent.

Creative deal structuring also played a role. Pfizer’s $160 billion deal to combine with Dublin-based Allergan Plc, the biggest deal of the year, was structured so that the smaller Allergan was technically buying Pfizer, making it easier for the drug giant to relocate its headquarters to a more attractive Irish tax base.

‘Robust’ Volume

Still, what Europe lacks in size, it makes up for in numbers.

The number of transactions for European companies announced so far this year is up 12 percent from this time last year at almost 6,000, according to data compiled by Bloomberg. The U.S., which had the most companies bought at about 8,740, is up less than 5 percent.

“While deal values in Europe lag those seen in the U.S market, volumes paint a very different picture,” Ballheimer said. “The European market certainly feels robust and advisers like us are as busy as ever. There’s nothing to suggest that will change next year.”

As Europe’s economic growth becomes more stable, companies will become more confident and deals will follow, said Eamon Brabazon, Bank of America Corp.’s head of financial sponsors M&A in Europe, the Middle East and Africa.

“All the ingredients for a sustained uptick in European M&A for 2016 and 2017 exist,” Brabazon said. “In the recent economic cycle, Europe has tracked approximately two years behind the U.S.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE