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Corporate Bonds

Editor's overview: M&A — with EU growing, the recipe is complete

Unlike recent years, when the M&A pie has turned out more lukewarm than piping hot, this year has one extra crucial ingredient: really convincing European growth. By Toby Fildes.

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New years always start the same way — well meaning resolutions about waistlines, sobering credit card bills and con dent predictions about how the next 12 months will  finally bring the long-promised boom in mergers and acquisitions.

January 2018 is no different. Yet again, people are utterly convinced this will be the year for chart-topping M&A. As before, the key elements are in place: an economy going in the right direction, healthy corporate balance sheets, very low interest rates, central banks printing money, juiced up  nancing markets, a supportive stockmarket.

But unlike recent years, when the M&A pie has turned out more lukewarm than piping hot, this year has one extra crucial ingredient: really convincing European growth.

With Germany forecast to grow at 2% in 2018, France at 1.7%, Spain at 2.3% and even Italy at 1.5%, everything is  nally in place for an M&A boom. And as long as a decent proportion of the deals include a cash consideration, that should bring a financing binge to loan, bond and equity markets.

It certainly has political backing.

France’s President Emmanuel Macron, in a speech at the Sorbonne in September, called on Europe to create champions of industry, to rival the corporate titans of Asia and the US.

European companies are thinking along the same lines. The week of the Sorbonne speech saw Alstom, the French train maker, accept an offer to merge its rail services with those of Siemens, in a bid to compete with China’s state-owned rival, CRRC.

Chinese acquirers, meanwhile, have been a big feature of international M&A markets in the past few years. While their activities slowed in 2017, as the Chinese government reined in the wilder asset-hunters, 2018 should see the Chinese back in force.

But it’s not just companies getting frisky. An increasing number of people expect to see some big bank mergers this year. Banks are nearing the end of the long road of re-regulation and capital build-up and can now start to think about how they can grow the top line — even, perhaps, by entering new markets.

Regulators in the US and Europe are finally softening their stance and saying consolidation needs to happen, to strengthen the industry.

For the  first time since the crisis, the authorities are finally acknowledging that banks need to be profiable as well as just safe.

Expect more hoovering up of small banks — Italy is an obvious place — but also the occasional big cross-border merger. Commerzbank is one target, with BNP Paribas, Crédit Agricole, UBS and UniCredit potential suitors.

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