European M&A enjoys mixed fortunes

Continuing uncertainty caused European M&A activity in April to decline to its lowest total since 2009. However, one London-based lawyer believes this landscape could present 'Once in a lifetime' opportunities for the private equity industry.

European M&A suffered a turbulent month in April with the number of transactions falling to its lowest level since August 2009, although the total value of deals increased, according to RW Baird’s global M&A report.

“Europe’s leadership must make progress on resolving heightened uncertainties in order for its M&A performance to improve,” the report said. 

The report blamed the recent elections in France and Greece, which caused concern over the sustainability of austerity programs addressing sovereign debt burdens, for dampening Europe’s M&A. 

However out of Europe’s doom and gloom Dechert partner Jonathan Angell can see light at the end of the tunnel.

As European banks try to bring clarity to their balance sheets, selling off assets as they try to rebuild their capital bases, and private equity firms remain under pressure to act on existing portfolio companies, more assets will be released into the market, Angell tells Private Equity International.

“Look at HSBC and Montagu, the formation of Equistone from Barclays and Santander’s disposal of a minority interest in its Brazilian operations. These are great examples of where private equity can take advantage of the landscape,” said Angell.

However, it is not going to be easy for private equity firms operating in this space. 

The sentiment in Europe is that it is very much a seller’s market on the basis that quality assets will command high levels of competition and very high prices. The report proves this as there were fewer deals for a greater amount of money in April.

Another challenge facing European private equity houses is the lack of available finance from European banks. “They [private equity firms] have got a lot of dry powder but is there going to be the debt financing available from European banks for attractive acquisitions?” asked Angell.

“That’s the big unknown from their perspective but similarly there may be opportunities for US and other private equity firms to come into Europe where they are possibly able to get financing from their own local banks,” he added.