Europe sets global M&A pace as politics hurts US
LONDON – Europe, often a laggard compared to the US in mergers and acquisitions, has turned out to be the hot spot for deals this year.
A more stable economic outlook and growing confidence in Europe has boosted deal-making on the continent, while in the US, the battle to lower corporate tax rates and fewer blockbuster deals have contributed to lower volumes. Buyers have announced $680 billion of acquisitions targeting European companies in 2017, up 23% from last year’s total, according to data compiled by Bloomberg.
In contrast, the value of announced deals in North America has fallen almost 30% to $1.1 trillion this year. the lowest since 2013. While North America still accounts for 44% of global M&A volumes, that’s down by almost a tenth from this time last year and the smallest proportion since 2010. Europe, meanwhile, is at a six-year high, contributing 27% of total deal-making.
“Europe is going through a period of economic resurgence and this will continue through 2018,” said William Rucker, chief executive officer of Lazard Ltd. in the United Kingdom. “Macroeconomic conditions are supportive of M&A activity and business confidence is back.”
Despite the surge, global M&A volumes are still on track for the slowest year since 2013. Just $2.5 trillion in mergers and acquisitions have been announced, well below the $3 trillion-plus figures recorded in 2015 and 2016. Overseas acquisitions by Chinese companies, in particular, have significantly dropped since as deal-makers struggle to cope with tighter capital controls and increasingly wary counterparties.
This year started with some of the biggest European deals. French lens-maker Essilor International agreed to purchase Luxottica Group, the Italian producer of Ray-Ban sunglasses, for about $24 billion. Johnson & Johnson bought Swiss biotech firm Actelion for $30 billion.
The outcome of other European mega deals won’t be clear until next year. A winner is yet to be decided in the race for Spanish toll-road operator Abertis Infraestructuras, which is being sought by Italy’s Atlantia and Hochtief, the German unit of Spanish builder ACS. Still, deal-makers are optimistic that 2018 will continue the trend.
“With economic growth back on track and good financing conditions, we are in for a good M&A year in Europe in 2018 as companies try to create European champions on the continent,” said Alison Harding-Jones, Citigroup’s London-based head of M&A for Europe, the Middle East and Africa. “CEOs have realized the need to form bigger, stronger European competitors to compete globally.”
In the US, companies shied away from large-scale M&A as they spent much of the year waiting to see how regulatory enforcement would take shape under President Donald Trump and whether the administration would be able to deliver on promises to change the tax code. Just three US deals valued at more than $30 billion have been announced in 2017 – all of them since September.
CVS Health waited until December to announce its $68 billion deal to buy insurer Aetna after an antitrust lawsuit forced the Aetna in February to abandon its takeover of Humana. Walt Disney Co.’s acquisition of much of 21st Century Fox was announced last week.
Broadcom’s $105 billion unsolicited bid for Qualcomm would be the biggest tech deal on record if it goes ahead next year.
Uncertainty doesn’t always damp deal-making – just look at the UK Even in the turmoil caused by the country’s planned departure from the European Union, deal-making increased 9.5% this year to $176 billion, though the growth is lower than most of her European countries.
Spain is leading the pack. Deals involving Spanish targets totaled almost $115 billion in 2017, the highest in a decade, Bloomberg data show. In addition to the potential Abertis takeover, Cerberus Capital Management is spending $4.7 billion on real estate assets from Spanish bank Banco Bilbao Vizcaya Argentaria.