Daily Management Review

Europe proves M&A growth is possible even without China


04/03/2017


In the first quarter of this year, volume of mergers and acquisitions in Europe exceeded $ 215 billion, thus having increased by 16% compared to the previous year. European companies were the main target of acquisitions in most cases, and the most active buyers were American investors. As for the Chinese companies, they virtually abandoned the European M&A market. Number of transactions in Europe with their participation decreased by 87%, while the growth rate of their number exceeded 200% the year before.



pixabay
pixabay
A year ago Chinese investors were the most active in Europe, having increased their acquisitions volume by more than three times in Europe. Now, however, they have actually left this market. As a result of the first quarter of 2017, this indicator fell by 87%, which can be explained by a tight control over foreign investment by the Chinese government. Nevertheless, actual withdrawal of Chinese players did not seriously hinder the European M&A market as American companies came to the place their Chinese counterparts.

Results of the first quarter showed that volume of M&A transactions in Europe, according to Thomson Reuters, reached $ 215.3 billion, which is 16% higher than last year's figure. This is a record level for the European market since the global financial crisis. The largest deals in Europe were purchase of Swiss Actelion, which cost Johnson & Johnson $ 30 billion, and merger of Italian sunglasses manufacturer Luxottica with French Essilor, which was valued at $ 50 billion. Such a successful beginning of the year for Europe became possible thanks to American investors. US companies spent about $ 114 billion for foreign purchases over these three months, with the bulk of this amount coming from Europe.

"Companies now live in a more stable environment, which gives them the confidence to make larger strategic deals, which, under other circumstances, could take much longer time", explained Alasdair Warren, co-director of European corporate and investment division of Deutsche Bank, commenting on increased activity of companies in Europe.

Earlier, John Reiss of White & Case LLP said that Chinese companies could spend $ 275 billion a year on mergers and acquisitions outside the country in the next decade, despite the fact that the PRC authorities are trying to limit the outflow of capital

"We expect dramatic activity in the M&A sphere coming from China", said Reiss, who heads the M&A department at the law firm, in an interview with Bloomberg Television. "There are some factors that need to be considered in the short term, such as capital outflow restrictions, high levels of debt of companies in China and some questions about the country’s financial system".  

The Chinese authorities began to strengthen control over movement of capital in the second half of 2016 after three years of outflow and depreciation of the renminbi. Of the $ 220 billion deals announced by Chinese buyers last year, $ 40-75 billion transactions were canceled or withdrawn, the law firm Linklaters LLP reported last week. 

source: bloomberg.com






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