This time last year, with the single currency area lurching from one crisis to the next, Europe was a no-fly zone for many US investors – both in terms of buying companies and backing private equity funds in the region.
But times have changed. Buoyed by their steadily recovering domestic market and ever-increasing stock prices, US chief executives are more confident now than they have been for some time, according to a the most recent CEO Confidence Index, a quarterly tracker published by US leadership consultancy Vistage International. Since many of them also have huge cash piles trapped outside the US for tax reasons, not to mention banks clamouring to lend them money, they’re keen to invest – and now Europe appears to have found a degree of economic and political stability (at least for the time being), European acquisitions are back on the radar.
It’s true that US trade buyers never totally went away, as far as Europe was concerned: according to Mergermarket, they’ve been responsible for somewhere between a fifth and a sixth of all M&A activity around European targets in each of the previous three years, and have accounted for at least half of all inbound M&A every year since the crisis. But for a time in 2012, activity levels fell off a cliff.
“There was a period where Europe was completely toxic – where the messaging around Europe was driven largely by the string of bad news stories people saw on their TV screens,” says Richard Madden, chief executive of boutique investment bank DC Advisory. “And that was effectively an override to the good sense that is beginning to prevail now.”
The UK-based M&A advisor has already sold five private equity owned business to US trade buyers in 2013 – including Lincolnshire-based Napier Turbochargers, which went to US-listed group Wabtec in February (netting owner Primary Capital a 5x return), and jeans brand Lee Cooper, which was sold to US business Iconix on behalf of Sun European Partners for $72 million.
Mike Hart, an executive director of DC in New York, says a lack of future visibility was a key reason for last year’s drop-off. “Acquirers are able to accept lower levels of growth and price them into an acquisition, but it is much more difficult to price in uncertainty. Of late some form of stability has returned, and we believe this will be met with an increase in inbound M&A from the US.”