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Snapshot: Alvarez talks US hunger for European deals

Alvarez & Marsal managing director and head of German transaction advisory group Jürgen Zapf tells Private Equity International that he is seeing more US mid-market fund interest in European assets.

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.

More mid-market US funds of $2, 3 or 4 billion in size are looking at European assets. “They are asking more questions about Europe and this is new,” Zapf noted.

US funds are eyeing software, healthcare and chemical sectors. In Germany, there is a huge industrial base but deals also include niche players and large family-owned entities, he said. “This is not new but it is growing. These assets are attractive because of the currency situation and there is a lot of money around.”

“If you have a good asset the financing is easy. You [the acquirer] get the asset and you get it cheap,” Zapf said, noting that he was working on a large bolt on acquisition for a US corporate owned by a PE firm.

Speaking generally, in the next three to six months, Zapf expected to see 10-15 transactions with an enterprise value of around €500 million in Europe and a steady flow of deals below €150 million.

“Activity is picking up by volume and value,” he noted.

The European private equity deal market is on track this year to reach its highest value since 2007, with buyouts totalling €58.4 billion in the first three quarters of the year, according to Centre for Management Buyout Research data sponsored by Equistone Partners, as reported by PEI.

The volume of deals is expected to be lower, with the size of deals significantly higher at an average of €126.3 million a transaction, the same research said.

Zapf said he was not aware of any mega-transactions in the same vein as Center Parcs, which was sold by Blackstone to Canada’s Brookfield Property Partners for around €3.5 million in June. “The question is time and those take a while. I doubt there’s a lot of volume in that area.”

A combination of expensive US asset markets, a favourable euro/dollar exchange rate and a drop in the oil price that is powering windfall profits for chemical companies, seen also in healthcare, is driving US investor interest, including corporates and funds, in European companies, Zapf said.

Within Europe, the economies in Italy, Spain and France are experiencing different issues and the UK and Germany remain the focus of M&A activity. “These are the hot spots where US corporates are looking. The stability there is more of a driver than growth. It is still the case that the UK and Germany are more mature and more comparable [with the US].”

Valuations have picked up “quite significantly” in the last month, he said. “A lot of transactions are stuck in the middle. The gap to close between the buyer and the seller is huge. Prices are stabilising at a high level but we see a greater difference between the first indicative price and what comes out at the signing. Prices go down a bit.”

There is stable, but low levels of deal activity in central and eastern European markets, where questions of political stability rise as you move east and investors, particularly funds, are sensitive to any uncertainty and are very careful, Zapf said.

A&M, which already has an office in Munich, opened a second German office in Frankfurt last year. In September, it expanded the transaction advisory team in Frankfurt with the appointment of Andreas Schmitz and Frank Morris as senior directors, and René Grein as a director, according to reports.