European Mergers and Acquisitions

By Hansen, Fay | Business Credit, January 2004 | Go to article overview

European Mergers and Acquisitions


Hansen, Fay, Business Credit


Signs that merger and acquisition activity has resumed after a long slump will be borne out in the coming months. In both Europe and the United States, merger activity ticked up toward the end of 2003, with Europe still leading both the number and value of transactions announced The expansion of European Union membership in 2004 and conversion to International Accounting Standards across the EU in 2005 should boost M&A activity on the continent.

In the third quarter of 2003, 1,988 deals were announced in Europe, well up from 1,572 in the second quarter, according to Mergerstat. Aggregate deal value of $87.5 billion in the third quarter matched 2002's third quarter results In the third quarter of 2003, 1,837 merger and acquisition activities were announced in the United States, down from 1,983 in the second quarter and slightly below the 1,899 deals announced in the third quarter of 2002 according to Mergerstat.

In both Europe and the United States the beverage and apparel industries reported an increase in 2003 M&A activity. Other industries with higher M&A activity in 2003 included food processing, broadcasting, banking and finance automotive products, and mining and minerals, Mergerstat reports. Industries that lagged in 2003 M&A activity included computer software, construction contractors and engineering services and real estate.

"M&A activity is driven by the availability of debt and equity capita as well as business confidence," notes Ian D. Cookson, director, Grant Thornton Corporate Finance. "We are now starting to see an increase in equity markets, up from recent lows. We also hear talk of widening of debt multiples, which are still around 3.5x EBITDA for highly leveraged transactions, and signals of increasing earnings. All of this should all help drive M&A volume in the future."

Although it is likely that higher M&A activity may emerge in 2004, transactions remained relatively subdued in 2003, and well below the record highs recorded before the 2001 global downturn. "Neither U.S. nor European M&A activity showed significant growth in 2003, although there has been higher merger activity in Europe than in the United States," notes Dr. Nayantara Hensel, a senior manager in Ernst & Young's Global Investigations and Dispute Advisory practice.

European Dominance

Deal volume in Europe has been higher than in the United States for several reasons. "European M&A volumes have been driven by some large deals in particular countries," Hensel says For example, Italy experienced a substantial increase in deal volumes and value from 2002, partially due to Olivetti's acquisition of the remaining 46 percent interest in Telecom Italia and due to the spin-off of Seat Pagine Gialle's telephone directories business in August. France was a significant contributor to European M&A deal volume in the third quarter, due to France Telecom's purchase of a $7.8 billion equity stake in Orange, the Air France KLM merger, and Canadian aluminum giant Alcan's $4.5 billion takeover of French firm Pechiney,

Hensel notes that European companies' decision-making in 2002 and early 2003 was less affected by the uncertainty over potential war in Iraq than decision-making among U.S. compay. In addition, European companies were less affected by U.S. corporate governance reforms.

"European companies, like their U.S. counterparts, have been focusing on restructuring and balance sheet reorganization," Hensel says. "Consequently, private equity buyers and middle-market transactions have similarly been important elements in the deal flow. Bids involving private equity firms in European M&A have risen since 1997 due to an increasing supply of capital, and accounted for 15 percent of European M&As in the first nine months of 2003."

U.S. Reticence

European M&A activity has outstripped activity in the United States for three years. …

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