Europe, often a laggard compared to the U.S. in mergers and acquisitions, has turned out to be the hot spot for deals this year.
A more stable economic outlook and growing confidence in Europe has boosted dealmaking activity in the region, while in the U.S., the unresolved battle to lower U.S. corporate tax rates as well as fewer blockbuster deals have contributed to lower volumes. Buyers have announced $680 billion of acquisitions targeting European companies in 2017, up 23 percent from last year’s total, according to data compiled by Bloomberg.
The year is ending on a high note for both European suitors and targets. Atos SE on Monday made a $5.1 billion unsolicited bid for Gemalto NV. Just hours later, Unibail-Rodamco SE’s unveiled its purchase of Australia’s Westfield Corp. for almost $16 billion.
By contrast, the value of announced deals in North America has fallen almost 30 percent to $1.1 trillion this year — the lowest since 2013 — and Asia is fairly flat at $626 billion. While North America still accounts for 44 percent of global M&A volumes, that’s down by almost a tenth from this time last year and the smallest proportion since 2010. Europe, meanwhile, is at a six-year high, contributing 27 percent of total dealmaking.
“Europe is going through a period of economic resurgence and this will continue through 2018,” said William Rucker, chief executive officer of Lazard Ltd. in the U.K. “Macroeconomic conditions are supportive of M&A activity and business confidence is back.”
Despite the surge, global M&A volumes are still on track for the slowest year since 2013. Just $2.5 trillion of mergers and acquisitions have been announced, well below the $3 trillion-plus figures recorded in 2015 and 2016. Overseas acquisitions by Chinese companies, in particular, have significantly dropped since as dealmakers struggle to cope with tighter capital controls and increasingly wary counterparties.
The year started with some of the biggest European deals. French lensmaker Essilor International SA agreed to purchase Luxottica Group SpA, the Italian producer of Ray-Ban sunglasses, for about $24 billion. Johnson & Johnson bought Swiss biotech firm Actelion Ltd. for $30 billion.
The outcome of other European mega deals won’t be clear until next year. A winner is yet to be decided in the race for Spanish toll-road operator Abertis Infraestructuras SA, which is being sought by Italy’s Atlantia SpA and Hochtief AG, the German unit of Spanish builder ACS. Still, dealmakers are optimistic that 2018 will continue the trend.
“With economic growth back on track and good financing conditions, we are in for a good M&A year in Europe in 2018 as companies try to create European champions on the continent,” Alison Harding-Jones, Citigroup Inc.’s London-based head of M&A for Europe, the Middle East and Africa, said in a phone interview. “CEOs have realized the need to form bigger, stronger European competitors to compete globally.”
Beyond mergers, one key driver for M&A across sectors this year is asset disposals, said Paul Hammes, global divestment leader at consulting firm EY. “CEOs are refocusing their strategy and shedding units that no longer fit with the company’s core business,” he said.
In the U.S., companies shied away from large-scale M&A as they spent much of the year waiting to see how regulatory enforcement would take shape under President Donald Trump and whether the administration would be able to deliver on promises to overhaul the tax code. Just three U.S. deals valued at more than $30 billion have been announced in 2017 — all of them since September.
“The first half of 2017 was smaller, tactical deals in the U.S., where the second half is being driven by large changes in industry structures,” said Michael Carr, global co-head of Goldman Sachs Group Inc.’s M&A group. “If the structure of your industry is changing, you have to get ahead of it or respond rapidly.”
CVS Health Corp. waited until December to announce its $68 billion deal to buy Aetna Inc. after an Obama-era antitrust lawsuit forced the insurer in February to abandon its takeover of Humana Inc. Walt Disney Co.’s acquisition of many of 21st Century Fox Inc.’s assets could be announced as soon as this week.
Broadcom Ltd.’s $105 billion unsolicited bid for Qualcomm Inc. would be the biggest tech deal on record if it goes ahead next year.
The flurry of larger deals late in the year could continue in 2018, especially for companies seeking growth or in industries seeing widespread disruption, according to Carr.
Uncertainty doesn’t always damp dealmaking — just look at the U.K. Even amid the turmoil caused by the country’s planned departure from the European Union, dealmaking has increased 9.5 percent this year to $176 billion, though the growth is lower than most other European countries.
Spain is leading the pack. Deals involving Spanish targets totaled almost $115 billion in 2017, the highest in a decade, Bloomberg data show. In addition to the potential Abertis takeover, Cerberus Capital Management LP’s is spending $4.7 billion on real estate assets from Spanish bank Banco Bilbao Vizcaya Argentaria SA.
“While the U.K. has lagged behind in M&A terms amid political and regulatory uncertainties, Europe is seen as an attractive market at the moment,” said Luca Ferrari, head of M&A for Europe, the Middle East and Africa at Bank of America Corp.