One in Five European Firms Eyes Major M&A in 2010

Almost one in five European companies is likely to make a major acquisition this year, a survey showed, adding weight to claims that European mergers and acquisitions (M&A) are set to rebound from their 2009 trough. But highlighting the continuing obstacles to deal making, the survey by UBS and The Boston Consulting Group (BCG) found executives were wary of taking on new debt and many thought there was a dearth of good targets at reasonable prices. Compared to last year's survey, conducted at the height of the financial crisis, respondents were also less convinced that "transformational" M&A would reshape their industries.
"CEO confidence is improving and signals the return of more normal M&A market conditions; balance sheet and other ‘crisis'-related drivers are less of an issue than last year," the UBS team wrote in a note dated Dec. 15. The poll of 166 companies found 19% were likely, very likely, or definitely going to buy another company that had at least €500 million in annual sales in 2010. Strategic reasons such as expanding product ranges, or accessing new locations and new customers, were most frequently cited. However, only 20% expected a "transformational" deal in their sector, down from 43% in 2008. The poll also illustrated a mismatch between buyers' and sellers' price expectations, with about 40% of respondents saying there was a lack of attractive targets and a similar proportion citing high valuations as a hurdle to deals. And just 9% planned to take on new debt or loans to finance deals, while 42% said deals would be financed by existing cash reserves. UBS forecasts a 15-20% percent increase in M&A this year. Its top picks as potential acquisition targets next year include pharma company Basilea and specialty chemicals manufacturer Croda.