As rumors swirled this
week about a French downgrade and riots spread across British cities,
bankers said European M&A would probably only equal last year's
mediocre performance if turmoil continued in September."Assuming the
current macro environment prevails and putting opportunistic trades
aside, it is hard to see volume growth in the second half of this year.
Board confidence is declining and execution risks have increased." said
Wilhelm Schulz, head of M&A for Europe, the Middle East and Africa
at Citigroup .Mega transactions like Deutsche Telekom's $39 billion
exit from the United States helped to drive deals involving a European
target or acquirer up by 93 percent year-on-year in the first quarter to
$321 billion, according to ThomsonReuters data.Then fears about
stuttering growth and Europe's mounting debt crisis slowed the rise to
only 24 percent in the second quarter, reversing hopes of a robust
rebound and several years of rising M&A.Escalating concern has already sent year-on-year third quarter business down 25 percent to $114.6 billion."It
is too early to call the (future) impact of the latest turbulence, but
if conditions of the last two weeks continue I think M&A volumes
could be flat at best versus 2010," said Giuseppe Monarchi, head of
M&A for EMEA at Credit Suisse. At the start of the year, Monarchi
had been expecting that M&A in the region would rise by about 20
percent year-on-year.According to estimates from
ThomsonReuters/Freeman Consulting, loss of that extra business would
cost advisers about $2.3 billion in fees."September will be key. The M&A market always slows down in August," Monarchi added.Sensible,
strategic acquisitions focused on growth will continue, according to
Barclay's co-head of M&A for EMEA, Matthew Ponsonby. "Bread and
butter M&A like this has been a strong theme all year and I see it
continuing," Ponsonby said."Of course it is not a time for huge
transformational deals, but I wouldn't say a gate has come down putting
M&A suddenly off the agenda."Others said recent failures like
the withdrawal of Cooper Industries' $875 million offer for British
rival Laird collapsed on tactical grounds, not because of market
volatility."Lot's of people seem to be of a similar mindset to me.
The situation we have seen with Laird — that is a company overplaying
its hand," a London-based asset manager said previously.Private
equity firms face tougher conditions than in the first half as well,
when debt was available in decent quantities and at attractive prices.Now buyout shops and their advisers see activity drying up as appetite from lending banks diminishes once more."The
industry as a whole is going to have a soft second half," said one
senior private equity executive who declined to be named.Leveraged
loans, the traditional fuel for the buyouts business, have become more
expensive in recent weeks. Lenders are pulling back on fears that they
will not be able to parcel up the debt and sell it on to others during
syndication.Current processes and ones due to launch that could be
impacted include the sale of PPR's mail order fashion business Redcats
for up to two billion euros and the disposal of France Telecom's Orange
Switzerland unit, which analysts have valued at about 1.5 billion euros."If
we have this kind of volatility, nobody wants to buy or sell," said a
banker advising private equity firms. "I'm afraid it's going to remain
that way — financing markets aren't great so it's going to be a tough
end to the year," he added.
