Bargain hunters and mega deals to the rescue as Europe’s deal market rides out political shocks

Marco Cillario finds deal professionals heaving a sigh of relief after a nail-biting end to 2016

Economic and political shocks took their toll on the deal market in the first half of 2017 as activity levels dipped but M&A professionals are sizing up the crucial post-summer period in an unexpectedly upbeat mood thanks to a run of big-ticket bids.

The latest numbers from data provider Mergermarket show the value of announced deals in H1 2017 up 8% to $1.49trn against the previous year, despite the total number of bids falling more than 10% to 8,052. The shifting dynamic was largely thanks to the return of high-value bids, with 17 deals worth more than $10bn unveiled.

Critically for leading City deal teams, their core Europe market was the standout performer thanks to rising business confidence in mainland Europe and a weak pound attracting bargain hunters to the UK.

Boosted by the stabilisation in oil prices, the energy, mining and utilities sector was the busiest globally with 662 deals worth $267.9bn, a 52% rise on H1 2016. Technology was once again another hot spot. The sector was the best performing in the US by volume, with 447 deals worth $43.5bn.

The mood among hardened deal lawyers is certainly improving after a turbulent period in which the shock of the 2016 vote for the UK to leave the EU weighed heavily on bid activity.

‘The second half of last year was pretty awful,’ says Mike Turner, head of technology, media and communications at Taylor Wessing. ‘Post-Brexit, anyone involved in an M&A transaction waited until the summer was over before starting negotiating, so it just shifted the whole process. But within a matter of weeks in 2017 we saw an uptick in value and volume.’

‘I feel optimistic. There are bigger deals around.’ David Avery-Gee, Linklaters

The European market saw 3,091 deals announced for a total value of $481.9bn, a 30% increase on the first six months of 2016, despite 641 fewer deals than the same period last year. This means European M&A activity accounted for 32% of global value, with both the US and Asia-Pacific (excluding Japan) seeing their share drop to 40% and 18% respectively.

All of the top three deals globally involved either a bidder or a target from Europe (see box, ‘Top Deals’).

The presidential triumph of Emmanuel Macron in France and the defeat of populist Geert Wilders in the Netherlands drove new optimism on the continent, while economic data showed pronounced recovery of the Eurozone in 2017.

In the UK, the falling value of sterling attracted overseas investors in what CMS’ co-head of corporate Charles Currier describes as the ‘busiest M&A market since 2007’.

Linklaters’ corporate partner David Avery-Gee reflects: ‘There were fewer domestic consolidation plays, but we saw more large cross-border deals.’
White & Case’s Guy Potel adds: ‘Brexit is having a beneficial effect from an M&A volume perspective and we have seen an increase in activity from US bidders for UK assets.’

The year has also seen private equity continue its robust run, with the buyout industry putting in the highest quarterly global buyout value since the banking crisis at $153.3bn and the highest exit value of the 21st century at $166.1bn.

As for advisers, the Magic Circle is unsurprisingly prominent in Europe, with Linklaters making it into the top three for volume and Freshfields Bruckhaus Deringer for value (see box, ‘Top advisers’).

While patchy deal activity is an ominous sign for M&A teams’ cash flows, the consensus is that the situation looks considerably better than many feared in the wake of political upsets like Brexit and last year’s election of Donald Trump.

Says Avery-Gee: ‘I feel optimistic for the next six months based on our pipeline. Volume is slightly down, but there are bigger mandates around, particularly in natural resources, asset management, real estate and technology, which is a focus for a lot of our clients.’

Currier concludes: ‘We are expecting a good third quarter based on our pipeline. But it’s hard to look much beyond that.’

Relief at least. But still far from a bullish mood.
marco.cillario@legalease.co.uk