FT Alphaville was at the 2008 European M&A Awards last night. The mood was subdued, to say the least.
So we were surprised by UBS’s European M&A Q-series released today. It polls 164 CEOs and senior executives of European companies on their outlook for mergers and acquisition activity next year,and is surprisingly bullish.
For instance, European M&A volumes are already down 20 per cent year to date, but that’s not stopping 29 per cent of respondents from saying they’re likely to engage in M&A activity (€250m and above) in 2009. To put that in context, in UBS’s words:
29% is a material number in this environment, but not implausible: our analysis of deals over €250m by E300 companies over 2006-08 indicates that on average 44% of them made acquisitions in any one year.
Amazingly, 51 per cent of those polled expect no change to their M&A plans versus a year ago — though 27 per cent plan to decrease their spending.
What, you may ask, is the driving force behind planned M&A deals? Survival maybe? We’re not sure if that was one of the options in the poll, but in any case, it wasn’t boosting revenue streams (many of which would, presumably, be suffering at the moment) or “responding to change” but instead, “filling strategic gaps.” See below:
For clarity, from UBS:
When it comes to motivation for M&A it seems that strategic considerations generally far outweigh more easily measurable P&L (revenue and cost) imperatives. This is consistent with companies often saying the capital market is far more short term than themselves… By strategic value they usually mean materially enhance the company’s product and/or geographic positioning and in turn how the company is perceived by the market. Companies are using M&A to shape and build their business portfolios. Examples of deals we would view as essentially “strategic” are Pernod Ricard/Vin Sprit, Vodafone/Hutchison Essar, BASF/Engelhart and OTE/Germanos.
Despite the optimism above, those polled (92 per cent of them anyway) did recognize there are some external barriers to deals. Notably the near-absence of credit, a lack of attractive prospects and, interstingly, high valuations. That would suggest to us that these particularly executives either plan to wait for some really great bargains or they think shares in potential targets have a lot further to fall next year.
Anyway, for what it’s worth, these are the the percentages of respondents expecting “transformational” deals (the kind that “change the competitive landscape” in UBS’s words) in their sectors over the next year. No surprise that banks and insurance top the list — though we would’ve expected transport to feature a little higher as well.
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