European M&A Report - 1° Quarter 2019
According to Mergermarket global M&A activity experienced a slowdown in the 1° Quarter 2019, with a significant decrease both in number of deals (-30%) from 5,085 to 3,558, than in deals worth (-15%), with a total worth of USD 801.5bn registered in 1Q19, against USD 943.5bn compared to 1Q18.
European M&A accounts for about 40% in deals' number, but only 15% of the global deals' value, with an average deal's value of about 90 Mln, with Industrials and Chemical still accounting for the most (26%)
Amid rising levels of political and economic uncertainty, coupled with growing protectionism, many European firms slowed their investment decision making during the first quarter.
This, however, has paved the way for private equity firms to take centre stage in a bid to deploy their record amount of dry powder. As a consequence,
European M&A plummeted to its lowest quarterly value since 3Q12. A total USD 122.9bn changed hands across 1,387 deals, falling even further from an already subdued 2H18.
So far this year, none of the ten largest deals globally have targeted Europe, with no takeovers above USD 10bn announced in the continent. The largest deal in the first quarter saw ZF Friedrichshafen acquire Swiss brake technology manufacturer WABCO for USD 7.2bn. As a consequence, German M&A has been resilient in the opening months of 2019, despite economic difficulties, reaching USD 23.4bn – on par with 3Q18 and 4Q18 combined - following a number of high-profile buyouts.
Meanwhile, the relentless uncertainty surrounding how Brexit will unfold has left UK M&A activity remaining at an historical low during the first quarter. A total of USD 35.2bn was spent on UK-based assets in the first three months of the year, rendering it the lowest quarterly value since the EU referendum in June 2016. Boardroom confidence in pursuing blockbuster deals appears to have taken a further hit following the proposed merger between Siemens and Alstom being blocked due to competition concerns. Following calls by leading politicians across Europe, including French President Emmanuel Macron, to create ‘European champions’ capable of competing against giants outside the continent, the move brings into question the viability of such mergers going forward. The uncertainty has hit domestic European M&A.
In total, intra-European dealmaking amounted to USD 64.2bn (1,169 deals), signifying that domestic activity has failed to reach the USD 100bn mark for three successive quarters.
Consequently, M&A between European companies accounts for just 52.2% of the continent’s total value, around 25% lower than at this stage in 2018 (77.5%).
However, in recent weeks rumours of banking consolidation have re-emerged with Deutsche Bank and Commerzbank in talks. Both banks have long been linked as potential merger partners given their relative financial shortcomings. Combining the Germany’s two largest lenders would go some way to creating an entity of scale to more closely challenger rivals; and has been encouraged as such by the country’s Finance Minister.
Foreign investment has also been comparatively quiet this year. Inbound M&A dropped to USD 58.7bn, the lowest quarterly value since 4Q17. Foreign investment may drop further in the coming months following the announcement that the EU had approved a new foreign direct investment screening framework, aimed at “safeguarding Europe’s security, public order and strategic interests”. The move will likely result in continued subdued activity by Chinese investors into Europe.
A total of 16 deals by Chinese firms into the continent were announced in the first three months of the year, marking the joint-lowest quarterly figure since 3Q13 (15 deals).
Private equity is one area to have remained robust in 2019, with several high-profile buyouts already announced.
Buyouts, which have reached USD 35.9bn (259 buyouts), account for 29.2% of total European M&A – the highest figure at this stage of the year on Mergermarket record. With fundraising reaching unprecedented levels in recent years and private equity firms sitting on extortionate amounts of dry-powder, many have looked towards higher-valued assets, including listed companies, as the mid-market becomes increasingly saturated. There have been 11 take-private buyouts worth a combined USD 19.9bn announced so far this year including the USD 5.5bn takeover of UK satellite firm Inmarsat by a consortium formed of Apax Partners, Warburg Pincus and CPPIB.
This represents the highest quarterly volume since 4Q14 and the highest quarterly value since the crisis and follows a buoyant period of public-to-private buyouts with a total of 78 such deals in Europe took place between 2016 and 2018. And more appear to be in the works. Politics is likely to be at the forefront of dealmakers’ minds in the coming months with Brexit, European parliamentary elections, and potential changes to merger rules on the horizon. Despite the subdued start to the year, dealmakers will be hoping the rumoured big-ticket mergers such as Commerzbank/Deutsche Bank come to fruition and set the tone for the rest of 2019
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Source: Mergermarket Global & Regional M&A Report 1Q19