Europe Goes From M&A Laggard to Leader as Crisis Subsides

After years of holding back as Europe lurched from crisis to crisis, the region’s large companies are staging a deal-making comeback.

Western European buyers announced $149 billion of acquisitions in the first three months of the year, a nearly 60 percent gain over the start of 2013 that outpaces the increase from North America and Asia, data compiled by Bloomberg show. Led by telecommunications, media, and technology companies, the value of announced acquisitions worldwide rose about 26 percent to $637 billion, the best start to a year since 2007 -- before the global financial crisis.

Shareholders are rewarding risk-taking buyers, and motivating chief executives to strike large deals while interest rates are still low. Shares of Altice SA, the cable company negotiating Europe’s largest deal this year -- the purchase of Vivendi SA’s French wireless business SFR -- jumped as much as 16 percent when it was picked for exclusive talks, while those of rival bidder Bouygues SA tumbled.

“CEOs have gotten their arms around their businesses and are more optimistic that they can operate within the context of an improving economy,” said Hernan Cristerna, global co-head of M&A at JPMorgan Chase & Co. in London. “Shareholders are betting on a robust economic recovery so they’ve become more aggressive in asking for transactions.”

Business Confidence

Technology and communications companies -- from Comcast Corp. to Facebook Inc. -- announced $174 billion of takeovers globally, the data show. Spending by Asian buyers rose by about 41 percent from a year earlier while North American companies boosted spending by 18 percent during the quarter.

In Europe, interest rate cuts and central bank pledges to buy the bonds of crisis-hit countries have boosted business confidence. The euro-area economy grew more than economists expected in the fourth quarter of 2013, and surveys of purchasing managers published in March showed manufacturing and services activity is near the strongest in almost three years.

Car sales in the region rose for the sixth consecutive month in February as an economic revival and price cuts helped boost demand for new models from Renault SA and Volkswagen AG.

To be sure, as last year showed, a strong start in dealmaking can fizzle in the face of unexpected shocks. After the first two months of 2013 were marked by takeovers of Dell Inc. and H.J. Heinz Co., the rest of the year was characterized as one of executive caution amid concern over U.S. spending cuts, leadership changes in China and Europe’s debt crisis.

Russia Risk

“Deals so far have been well received but for this positive momentum to continue, companies need to see any lasting economic and macro concerns recede even further into the background,” said Mark Warham, the London-based head of M&A in Europe, the Middle East and Africa at Barclays Plc.

Few would’ve predicted Russia annexing Ukraine’s Crimea region, which roiled equity markets. Sanctions being imposed by the U.S. and Europe as a result highlight the potential impact on Russian companies, which made $180 billion in deals globally in the past two years.

The biggest Russia-related transaction this year -- German utility RWE AG’s sale of its oil and gas unit to a group led by Russian billionaire Mikhail Fridman -- was accelerated out of concern about sanctions, a person with knowledge of the matter said.

Consolidation Urge

The urge to consolidate power drove dealmaking by telecom, media and technology -- or TMT -- companies which are seeking scale to build high-speed networks, negotiate with content providers and respond as customers change the way they access the Internet and watch TV.

The biggest deal so far this year was Comcast’s $45.2 billion agreement in February to buy Time Warner Cable Inc. and create a bulwark against competition from phone and satellite providers. Facebook made a $19 billion offer for messaging service WhatsApp Inc. also that month. Vodafone Group Plc in March agreed to buy cable provider Grupo Corporativo Ono SA for $10 billion to boost TV and broadband offerings in Spain.

While Altice is holding talks for Vivendi’s SFR, the hunger for telecom assets means Bouygues has boosted its competing offer to over $18 billion in cash. Altice itself is weighing plans to raise the cash component of its offer, people with knowledge of the matter said today.

“M&A activity is being driven by convergence, consolidation in individual mobile markets and an evolving regulatory environment,” said Adrian Mee, the London-based head of international M&A at Bank of America Corp. “Also, companies have large amounts of cash, particularly in the tech sector.”

This is likely to continue. AT&T Inc. remains interested in a takeover of Vodafone, people familiar with the matter have said, and Sprint Corp., the U.S. carrier owned by Japan’s SoftBank Corp., is exploring a tie-up with T-Mobile US Inc.

Mid-Size Market

Morgan Stanley and JPMorgan are leading the global advisory ranks, followed by Goldman Sachs Group Inc., according to data compiled by Bloomberg. Citigroup Inc. and Barclays round out the top five.

Critically for the investment banks, the smaller deals that generate a greater share of investment banking revenue are also on the rise. The value of deals smaller than $5 billion in size rose about 23 percent to $97 billion in Western Europe during the quarter, the data show.

“In addition to the very large transactions, we are also seeing some momentum in medium-sized deals, which is the mainstream of the M&A market.” said Henrik Aslaksen, head of M&A at Deutsche Bank AG in London.

Third Engine

Large transactions involving consumer companies, meanwhile, are adding “a third engine to the M&A recovery” in addition to health-care and TMT deals, according to Gregg Lemkau, the global co-head of M&A at Goldman Sachs in New York.

In January, Japan’s Suntory Holdings Ltd. agreed to buy Beam Inc. for $16 billion including debt to gain brands such as Maker’s Mark whiskey. In March, Albertsons, the supermarket chain owned by Cerberus Capital Management LP, said it would pay about $9 billion for rival Safeway Inc.

“Conditions for dealmaking have been quite good for the last couple of years, but the mindset has been cautious because of whatever the looming crisis of the day was,” Lemkau said. “People now seem to be looking for reasons to do deals, rather than reasons not to do deals.”

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