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Is the M&A party ending?

After several exuberant years in the European M&A markets; the party seems to be ending. Following a disappointing end to 2018, the worst half-yearly figure in five years, there’s some worry that dealmaking may continue to plummet. 

Deal Drivers EMEA, published by Mergermarket in association with Merrill Corporation, has reported on an unbalanced 2018 for European M&A. The first six months saw the highest total deal value in a decade, whilst the second half fell to the lowest since 2013.

Geopolitical concerns including uncertainties around Brexit, trade and currency disputes between the US and its trading partners, and an economy that is moderating its growth, have had their effects on deal making. Rising protectionism continues to dampen enthusiasm for transatlantic deals after the number of deals between North America fell 6% year-on-year in 2018.

Whether European M&A dealmaking will further drop in coming quarters or merely keep to this more restrained pace remains to be seen. However, the recovering activity in H1 2019 gives some cause for hope.

Private capital dry powder is at an all-time high of over $2tn and there’s more reason to expect deal activity in Europe to be resilient. Private equity activity targeting European companies fell 15% in H1 compared to the same period, but this was a less precipitous fall compared to the 33% drop in overall M&A over the same period.

Mergermarket’s forward-looking Heat Chart shows that the TMT sector had the most acquisitions targets on the market in the first half of 2019, with 495 stories, followed by the consumer and industrials & chemicals sectors.

The UK & Ireland’s TMT sector remains the most activity despite ongoing uncertainties around Brexit. Whether these deals will complete before the end of 2019 remains to be seen and will depend on how Brexit negotiations conclude.

Data shows that the CEE region was a bright spot during the first half of the year and is expected to stay active for the rest of the year.

Italy’s consumer sector was another hot spot. While the country’s overall M&A fell over the past six months, the consumer sector was one of the few which grew – more than doubling compared to the same period in 2018. Private equity firms have been interested in Italy’s apparel and food sectors.

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