Less competition draws US firms to Europe

Competition and high prices are pushing US corporate and private equity firms to look across the Atlantic for mergers and acquisitions.

The rise in investment from US corporate and private equity firms in the European mergers and acquisitions market is set to continue because US corporates are unable to grow organically, according to an outlook report from US investment bank Baird.

In 2015, North American corporate and private equity firms spent $170 billion on European deals, compared to $144 billion in 2014, an increase of $26 billion.

Baird predicts that as European economies stabilises, and “concerns over China and emerging markets deepen” Europe will remain the target region of choice for US firms in 2016.

The increase in European investment is driven by the competitiveness of pricing in the US private equity space and the increasing need for firms to operate globally, said Baird.

Europe provides opportunities for US firms because there is less competition and quality assets can be bought for slightly less, a spokesperson for Baird told PEI.

North American firms without offices in Europe can also benefit from buying European assets that can be grown in the US.

“A competitive, relatively overcrowded, private equity environment in the US, is driving firms to look overseas. And firms know that they can leverage their track record in the US to accelerate growth of European headquartered businesses in the US,” said David Silver, Head of European M&A at Baird.

Other key drivers for private equity firms seeking European assets are the large amounts ($500 billion) of dry powder to be spent and continued liquidity in European debt markets, Baird states.

The European mergers and acquisitions market is seeing fewer deals below €150 million in value and more US funds interested in them, Alvarez & Marsal’s German transaction advisory group head Jürgen Zapf told Private Equity International in an interview last year.

The rate of globalisation of private equity firms is occurring rapidly and is a trend that is not going away, Silver said in the report.