Tech firms across Europe ripe for buyouts

Merger market poll suggests deal-making is expected to rise this year - in IT firms especially

A bullish outlook for mergers and acquisitions across Europe is expected, according to a poll of European executives by Mergermarket.

Thomas Meyding, head of law firm CMS, which sponsored the survey, said 76 per cent of the 225 executives polled indicated that deal-making will rise – a 28 percentage point increase on last year's figure.

"Our report echoes the sentiment of increasing market confidence as evidenced by the high level of M&A activity this year and in particular the most recent announcements of major transactions by German companies," Meyding confirmed.

"Continued financial and political uncertainty, particularly in relation to Russia and Ukraine, may still hold back M&A activity in Europe [overall]."

The largest percentage of respondents indicated they thought Germany would see the most M&A activity, followed by Benelux, Nordic countries, and the UK and Ireland. Twenty per cent expect technology, media and telecommunications to be the most active in M&A terms in Europe over the next 12 months.

Industrials and chemicals and energy, mining and utilities came joint second in sector terms.

In the CMS/Mergermarket survey, the top three buy-side drivers for M&A in Europe are predicted to be consolidation, increased appetite from foreign acquirers, and cash-rich corporate acquirers. More than half of the 225 respondents opted for one of these options as causes for M&A.

In tech and telecoms, consolidation is already particularly noticeable across the market, and deal volume in the sector expanded 10 per cent already in the first half of 2014, compared with the first half a year ago. The value of deals spiked 34 per cent to €66bn (£52bn).

"For instance, UK-based Liberty Global, on the back of its €18.5bn purchase of Virgin Media in late 2013, announced plans to acquire Netherlands-based media company Ziggo for €8bn and UK-based ALL3MEDIA for €672m. Through these deals, Liberty Global is looking to extend its geographical foothold across western Europe, to achieve economies of scale and increase revenue," according to the CMS/Mergermarket announcement.

Kristina Thompson, research editor at Mergermarket, said this indicates that more buyers are willing to take calculated risks, and to pay premiums for the right assets.

"We anticipate that European businesses will continue to put capital to work via acquisitions," she said.

On the sell side, the lead drivers of M&A activity were expected by respondents to be capital raising for expansion in faster-growing areas, business distress, and non-core asset sales from larger companies. However, the research firm also added that M&As as a result of businesses falling on hard times has reduced year on year by nine percentage points.

The main obstacle to deals across Europe, according to European executives polled, is regulation.

This is the second year this particular survey has been carried out.

Last year, most survey respondents, across all regions, were optimistic about European economic growth right up to 2015. Many also voted in favour of greater European integration, although the executives polled remained uncertain about resolutions to the so-called sovereign debt crisis.

Just like this year, technology, media and telecommunications were predicted to be the most fertile sector for M&A activity.