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Global deal-makers refocus on Europe

5 June 2013

Global deal-makers refocus on Europe

5 June 2013 – While caution prevails as economic uncertainty continues, the European M&A market remains a favourite destination for international investors. Of all the regions in the world, only the more buoyant economies of the Asia Pacific regions are seen by investors as offering better growth and M&A prospects. 42% of large international corporates see growth and acquisition opportunities within Europe, well ahead of North and Latin America as well as Middle East and Africa. Only a remarkably low proportion (5%) suggests that Europe is an unattractive M&A market altogether.

These are among the findings from the latest annual global survey that forms the basis of Clifford Chance's European M&A: On the road to recovery? report. The survey, conducted by the Economist Intelligence Unit (EIU) on behalf of Clifford Chance, canvassed the views of senior executives at close to 400 large companies globally from a wide range of industries. Over one-half of companies represented in the survey have annual revenues in excess of US$1 billion.

Europe's durable strengths, which include a highly developed infrastructure (42%) as well as its advanced technological know-how (29%), were cited by respondents as the main features which make it an appealing deal-making destination. 27% of respondents also cited Europe’s stable regulatory and legal frameworks as one of the biggest drivers for pursuing M&A in the region.

Western Europe is top deal ‘hot-spot’

Nearly one-third of respondents (32%) picked western Europe as their top destination on the continent for M&A over the next two years, with the UK & Ireland a close second (29%). Within western Europe, Germany has by far the best M&A opportunities on offer (62%). Japanese and Chinese respondents are primarily interested in what they see as safer European and non-Eurozone markets (northern Europe and the UK).

Commenting on the results of the survey, Matthew Layton, Global Head of Clifford Chance's Corporate practice, said:

“There is no doubt that the European M&A market has had a difficult few years since the global financial crisis took hold. However, the survey results indicate why we may now be approaching a turning point. Many of Europe's advantages as a destination are timeless. In a volatile environment, the enduring qualities of many European businesses, founded on a resilient infrastructure, make Europe a desirable hunting ground for international buyers."

Attractive valuations creating ‘bargain’ opportunities

The risks inherent in Europe today are opening up opportunities for bold investors to acquire assets at attractive valuations with potential for future growth. 43% of respondents say that the challenging socio-economic conditions are increasing their appetite for European M&A. One-half of survey respondents say that a break-up of the Eurozone would make them more likely to pursue M&A opportunities in the region.

However, the majority of sellers of European assets are choosing to wait and watch before putting up “for sale” signs, with just 15% of respondents suggesting that their firms will be disposing of assets in Europe in the next two years. European SMEs are seen to be the most likely sellers.

Lack of finance not an unassailable challenge

Using cash to fund deals will continue to be the preferred option among the companies surveyed, with 44% of respondents saying they will use cash reserves to finance deals, and bank loans a distant second (25%).

More than half (58%) of the respondents would prefer a traditional deal structure if carrying out M&A in Europe over the next two years, as opposed to a joint venture or taking a minority stake.

Matthew Layton added:

“Our survey shows that deal-makers are beginning to refocus on Europe, sizing up attractive opportunities, as depressed valuations mean there are bargains to be had. But unattractive pricing is deterring some sellers from putting their best assets on the block, especially large European companies who are cash-rich and have the luxury of being able to sit out and wait.

“The fact that cash is king for those seeking M&A opportunities confirms our view that for many companies finance is available to do deals. The key for the market is the return of boardroom confidence to pursue deals.”