'Golden age' of M&A has cash-rich buyers targeting Europe

[LONDON] Europe is back in fashion as the destination of choice for foreign buyers.

The volume of deals involving a European target reached US$134.2 billion in the first half of the year, up 57 per cent from a year earlier and poised for the most active year in at least a decade, according to data compiled by Bloomberg.

The largest transaction was Hutchison Whampoa Ltd's 10.3 billion-pound (S$21.9 billion) acquisition of Telefonica SA's UK unit, creating Britain's biggest wireless provider by customers. That figure may be surpassed if US seed company Monsanto Co. is successful in its pursuit of Swiss rival Syngenta AG, which last month rejected a US$45 billion takeover offer.

Companies outside Europe are keen on seeking deals in the region as executives are more confident in its economic recovery and corporate valuations are lower, according to Hernan Cristerna, London-based co-head of global mergers and acquisitions at JPMorgan Chase & Co.

"We're in a Golden Age for M&A," Mr Cristerna told a press briefing in London. "What is particularly evident this year is the increased inbound activity into Europe, both from North America and Asia." Almost US$1.8 trillion in global deals have been agreed this year, an increase of 15 per cent from last year and the busiest first half since 2007, according to data compiled by Bloomberg.

The continent is even ahead of the US as a target for overseas buyers, despite market volatility due to the Greek debt crisis and uncertainty over the timing of potential interest- rate increases. There were 605 overseas acquisitions of North American companies in the first half, with a total value of US$106.1 billion. That's a drop of almost 11 per cent from the same period a year earlier.

The biggest inbound US deal also involved an Asian buyer. Singapore's Avago Technologies Ltd agreed in May to acquire Broadcom Corp, paying US$37 billion for the Irvine, California- based wireless chipmaker.

Cash-rich US and Asian companies are seeking ways to expand outside their home markets and Europe is a region where they can find interesting assets, according to Paulo Pereira, a partner at Perella Weinberg Partners in London. The availability of cheap financing for buyers as well as owners that are more willing to sell following the stock market recovery are also encouraging M&A activity, he said.

The growing interest in European assets goes beyond the traditional, well-known pool of acquirers, said Vikas Seth, head of M&A for EMEA and global emerging markets at Credit Suisse Group AG in London.

Despite interest from private-equity firms such as KKR & Co. and CVC Capital Partners, it was a group of buyers led by little-known GO Scale Capital of China that won the bidding for Royal Philips NV's Lumileds lighting business.

South African investment firm Brait SE also made its presence felt by buying UK clothing retailer New Look and gym chain Virgin Active, both of which had been headed for stock market listings. And last week, Canadian fertiliser producer Potash Corp. of Saskatchewan Inc said it made an offer for K+S AG, the German potash supplier.

"Many European businesses have had a for-sale sign since the financial crisis," Mr Seth said. "It is only recently that global buyers have felt comfortable enough with the region's prospects to take advantage of what could be a once-in-a- lifetime opportunity to acquire strategic assets." The increasing European inbound M&A "is especially true in the UK, which is seen as a doorway into the region for many companies around the world, especially North American," Richard Sheppard, head of UK M&A at Deutsche Bank AG, told reporters in London.

That was proved in February, when Broomfield, Colorado- based Ball Corp. agreed to acquire the UK's Rexam Plc in a deal worth about 5.5 billion pounds, creating the world's biggest maker of food and beverage cans.

The strength of the dollar, which has advanced more than eight per cent versus the euro since the start of the year, may also be encouraging US buyers with cash to spend to look overseas for their next target.

There are still some scenarios that could affect the outcome of some deals or temper the enthusiasm for M&A, Mr Pereira of Perella said. Those include the instability of the euro led by events in Greece, geopolitical tensions in the Middle East or Russia as well as potential increases in interest rates, he added.

To be sure, the Greek debt crisis this weekend took a turn for the worst, which could dent growing confidence in Europe and scare away some potential buyers. Greek Prime Minister Alexis Tsipras unexpectedly called a snap referendum for July 5 on the latest bailout package from creditors, raising the likelihood of the country's exit from the euro currency bloc.

Despite those issues and the fact that upswings in M&A don't last forever, the boom in dealmaking activity will likely continue driven by strategic transactions that help achieve synergies, he said.

"The strong M&A market we're currently in is poised to continue during the second half of the year and the beginning of next, with Europe remaining an attractive market to pursue deals," Mr Pereira said.

BLOOMBERG