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US raids on cheaper rivals send Europe M&A soaring

Europe became the main target for cross-border dealmaking in the first quarter of 2017, as US companies rode a Donald Trump-fuelled equity rally to hunt for bargains across the Atlantic.

Mergers and acquisitions in Europe hit $215.3bn in the quarter, up 16 per cent compared to the same period a year ago. That marks the strongest start to the year for deals in the region since 2008, according to Thomson Reuters data.

The sharp rise in transactions involving European targets came on the back of an all-time record of overseas acquisitions by US companies, which spent $114bn abroad in the quarter.

“There have been more cross-border deals into Europe because there is more optimism in the region after it enjoyed a little more growth and greater political stability,” said Blair Effron, a co-founder of Centerview Partners.

But foreign bids for US companies fell to their lowest level since the start of 2014 in the first quarter of 2017, with dealmakers blaming Mr Trump’s protectionist rhetoric for deterring international takeovers while Chinese companies have been hamstrung by domestic capital controls.

Foreign acquisitions of US companies fell almost a quarter to $86.9bn, while deals among US groups were up only 3 per cent, suggesting uncertainty among buyers following Mr Trump’s election.

“While the first quarter saw a fair amount of outbound cross-border M&A from US companies supported by strong valuations, favourable exchange rates and easy access to inexpensive financing, the predominant attitude so far has been “wait and see” on what happens with tax reform and protectionism,” said Scott Barshay, a senior dealmaker at law firm Paul Weiss.

Overall global M&A activity in the first quarter rose 7 per cent to $726.5bn compared to a year ago, according to Thomson Reuters.

“The atmosphere from a business standpoint is actually pretty positive right now. It seems to set itself up well for M&A, but executives need to have more certainty on outlook. Without that, there is no urge to merge,” said Leon Kalvaria, chairman of Citigroup’s institutional clients group.

M&A advisers said that continued weakness of UK and European currencies also encouraged deals led by US and Asian groups, with a series of major transactions involving European groups announced in the quarter.

The largest deals included the $30bn takeover of Swiss biotech Actelion by Johnson & Johnson, and €50bn merger between Italian sunglass group Luxottica and French eyewear company Essilor. The activity has shown no sign of slowing, with US paints and coatings maker PPG continuing to stalk Dutch rival Akzo Nobel after a $23.7bn unsolicited offer.

The deal activity would have been even greater if Kraft-Heinz, the US food group, had succeeded in its aborted $143bn takeover attempt of Unilever. The Anglo-Dutch consumer goods company, however, fended off the US group’s offer, which was backed by Brazilian-backed private equity firm 3G and Berkshire Hathaway’s Warren Buffett.

The only region where M&A activity fell was Asia. Chinese companies were involved in fewer overseas transaction in the first quarter of 2017 following Beijing’s efforts to slow down the exodus of domestic cash abroad. In addition, Chinese companies have been put off doing deals in the US due to the tougher regulatory scrutiny their deals have encountered during 2016.

Scott Matlock, partner at PJT Partners, said: “For Chinese companies, it is often not about their ability to finance a transaction but whether they can get the green light of state approval and it stays green throughout the purchasing process.”

Via FT