Over the past 12 months, merger and acquisition (M&A) transactions have spiked in both North America and Europe. But while firms in the U.S. have become more aggressive in terms of using debt for M&A deals - particularly in the pharmaceuticals sector, those in Europe have remained more cautious in applying a mix of financing to such transactions.
Firms in Europe have also concentrated on small bolt-on acquisitions that leave them less exposed financially – deals of €1bn or greater in size comprised only 19% of European acquisitions in 2015, compared to 26% of North American acquisitions in the same time frame, according to data from S&P Capital IQ. In terms of industry and geography trends, Europe remains consistent with 2014 thus far, with buyers continuing to seek growth from U.S. companies in the IT and healthcare sectors.
EUROPEAN M&A - ROLLING FOUR QUARTER ACTIVITY BY VALUE IN EUROPE
Source: S&P Capital IQ, Standard & Poor’s Calculations. Shows rolling four-quarter sum of deal value by European buyer (EU31, Switzerland, Iceland and Norway) with European and North American target. Standard & Poor’s European Corporate Credit Outlook Q3,2015.
While the Greece situation created uncertainty before the summer, Standard & Poor's Rating Services believes that the trend continues to point to M&A activity climbing during the second half of the year among European companies, as well as in North America. This is due to relatively high levels of cash on balance sheets; the low, albeit rising cost of capital; and the desire to acquire growth.
Standard & Poor’s Ratings Services recently published European Corporate Credit Outlook for Q3 2015 discussing these trends in more detail. As well as providing general credit views, S&P Ratings Services concluded that European companies' best prospects are close to home, with global trade volume growth likely to stay minimal in the near future (see "Europe Appears A Safer Haven").
In addition, with the building interest in global M&A activity, Standard & Poor’s has published a separate commentary, which examines the impact of deal synergies on credit ratings. The research, titled “Solid Integration Experience And Financial Discipline Are Key To Assessing The Credit Impact Of M&A”, discusses how the credit impact of a M&A transaction can hinge on many factors, but generally the most important centre on the funding structure of the deal and the financial discipline applied by the acquirer during the integration process. The report also points out that besides direct cost and revenue savings, acquisitions can indirectly drive synergies through nonfinancial benefits such as scale, scope, and diversity, leading to greater stability in future earnings.