BNP’s Varene Sees Europe Passed by Asia in M&A RebalancingFabio Benedetti-Valentini and Elisa Martinuzzi
BNP Paribas SA’s Thierry Varene, who has overseen the French bank’s corporate-finance arm since 2000, sees a muted recovery to dealmaking in Europe and added that Asian firms are increasingly becoming acquirers rather than targets in the global merger market.
“M&A will progress, even if at a slow pace,” said Varene, head of BNP’s European investment-banking business. “There will be a period of change, a rebalancing in the flow. Dealmaking, which has been primarily from west to east and west to west, will rebalance from east to west.”
While some companies would benefit from acquiring rivals in a shrinking market, the harmful effects of the frail economy in Europe will continue to hold back consolidation, said Varene, 61. The longest euro-area recession on record in the aftermath of the region’s sovereign-debt crisis has tempered executives’ appetite to expand.
“In various sectors, there are still too many players in Europe after a long period of low growth, and the opportunities for companies are limited,” the executive said in an interview in Paris. “Companies need to be able to deliver synergies, which can be challenging in an environment of high unemployment.”
Governments in countries such as Italy and France have clashed with companies trying to cut jobs. The European Central Bank unexpectedly cut interest rates to a record low last week amid a 12.2 percent unemployment rate, the highest since the euro area was created. European leaders met Nov. 12 at a youth-unemployment summit in Paris as they weigh whether to mobilize 45 billion euros ($60.6 billion) to combat joblessness.
The ECB is also assuming oversight of the banking industry next year. Varene said banks need to wait until that new regulatory regime is in place before embarking on mergers.
“Even though the banking industry is still too fragmented in Europe, we do not anticipate consolidation, at least until banking union is up and running,” said Varene. Until then, banks may buy or sell smaller businesses and boost or reduce their exposure to specific countries, he said.
BNP Paribas, France’s biggest bank, rose as much as 3 percent in Paris trading today, valuing the company at about 67 billion euros. The lender late yesterday said it plans to buy Belgium’s 25 percent stake in its local consumer-banking unit for 3.25 billion euros.
In Poland, BNP offered to buy Bank Gospodarki Zywnosciowej SA, an agricultural lender with a market value of about $1.2 billion, the bank said on Nov. 7. Varene declined to comment on the potential purchase.
Buyers from outside Europe will likely focus on the telecommunications and power industries over the next two-to-three years, he said. New technology and higher costs of capital are prompting technology firms to reorganize, while European power companies seek to sell assets.
The euro’s rally in the past 16 months shielded European targets from U.S. bidders, Varene said. The ECB’s decision to cut its benchmark rate to 0.25 percent “could ease the situation,” he said.
Mergers involving companies in Europe, the Middle East and Africa, which have reached $880 billion in 2013, are on course for the best year since 2008, data compiled by Bloomberg show, though M&A is still less than half the record $2.2 trillion seen in 2007.
BNP ranks 11th among this year’s advisers, the data show. Pretax profit at BNP’s corporate and investment bank, which includes trading and corporate finance, fell 24 percent to 552 million euros from a year ago. While sales from fixed-income trading dropped 27 percent at constant exchange rates to 780 million euros, equities and advisory revenue rose 14 percent to 484 million euros, BNP said on Oct. 31.
The French bank is hiring about 1,300 people over three years at its corporate and investment-banking and investment-solutions businesses in the Asia-Pacific region. BNP foresees annual revenue growth of 12 percent through 2016 in Asia, it said in February.
The slow pick-up in M&A is also weighing on stock sales, which Bloomberg data show are still lagging 2009 levels. However, Varene said lower equity valuations in continental Europe than elsewhere, low interest rates and sustained corporate profits should help lift equities transactions over the next two years.
Varene called on European antitrust regulators to become more lenient on regional companies’ consolidation plans, given the threat of stiffening competition from outside the bloc. The 28-country European Union next year will have a new commission following parliamentary elections.
“You would expect the new European commission to look at Europe in a more global way,” BNP’s Varene said. “The commission’s antitrust approach has not facilitated the emergence of European champions.”