There Is A Revival Of Corporate Deals (M&A) In Europe

M&A are increasingly growing in EuropeThe M&A market today is driven by investment funds, which account for more than half of all transactions

The German government’s decision to abandon nuclear energy after the Fukushima disaster (March 2011), gradually withdraw from fossil fuels and bet on renewables, has obliged the country’s energy sector to embark on a massive change and restructure their production. As pointed by Alphavalue’s analysts this consolidation planned for Germany’s public services sector is actually a remodelling of assets worth 30 billion euros, which represents approximately 10% of the public services sector in Europe.” If including Fortum’s agreement over Uniper, it would add on a further 25 billion euros. It’s possible that more corporate moves will emerge, given that Engie’s intentions, which included buying Innogy, now have to evolve as part of its consolidation plans.

Similarly to the German energy sector, what has triggered the restructuring in the European auto sector is green technology. This is a very serious catalyst and dieselgate has been speeding up the process.

Chinese car manufacturers want to move on to emission-free cars and take control of global brands and the associated technology. Geely’s acquisition of Volvo Car is a success story in this respect. Can Geely join forces with Daimler in industrial collaborations? Alphavalue’s experts explain:

It is assumed that Geely doesn’t have much money, but it found 7 billion euros to invest in Daimler. This comes just after Geely spent 2.4 billion euros on Volvo’s truck division. Geely’s initiatives are sparking a series of questions just when Volkswagen is considering re-listing its own truck business. In H2’17, there was a rumour that the Asian giant could make a play for Fiat Chrysler. The US/Italian/Dutch company’s share price has remained at highs since then.

In summary, the automobile sector is being obliged to carry out a series of thorough adjustments. Its weighting is approximately 450 billion euros and 2018 earnings will be at all time highs.

Semiconductors are not a strong point in the European economy. But since Qualcomm ($93 billion of market capitalisation) launched its bid for NXP ($42 billion), it has been the target of Broadcomm($110 billion) which, at the same time, is potentially the target of Intel ($243 billion). Infineon and Stmicroelectronics , with market caps of 25 billion euros and 18 billion respectively, are smaller fish, but they have attractive know-how. As a result, there may be corporate deals apart from the Tsinghua University buying a 9% stake in AMS (reduce, price target 112 CHF/share).

Looking at the pharmaceutical sector, this has seen consolidation over the last 10 years:

Firstly because of the decline in patents, then later due to the “investment for tax reasons” and now for the acceptable tax rates which have been applied outside the US. The R&D bill should be diluted in bigger revenues and reductions in size as the chain of health payments in the US is also going through a restructuring process. Without any Chinese producer, the consolidation looks like it will continue.

Whether a company like SANOFI (buy, price target 78,8 euros/share) can keep on paying too much for supplements remains to be seen. We are talking about a sector with a capitalisation limit of 1 trillion euros.

And finally, other sectors like mining, oil, chemicals, transport, food and beverages and construction materials have been buying and selling assets at a fast pace in the last few years. So Alphavalue don’t expect new waves of M&A.

The indication that the markets have reached a consolidation peak will be when the banking sector news. Meanwhile, Chinese capital, green technology pressure, technological progress and fiscal support are combining to breathe new life into the patrons of the European universe.


About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.