Financial services M&A to drive growth in 2012

European deal making in the financial services sector will be a key driver for economic growth over the next five years according, to a study released by intelligence service Mergermarket and business jet company NetJets Europe.

The study revealed that financial services is expected to represent 37% of global merger and acquisition (M&A) activity in the year ahead and 39% in the next five years.

This is a significant chunk of the €250bn rise in value of global M&A expected in 2012, bringing the total value of activity to nearly €2trn, a 14.5% leap from 2011.

According to a Swiss corporate M&A director, “with the unresolved issues we had in 2008 there is still so much going on. Given these problems with the banks there should be a lot of opportunistic deals that will be rolled out.”

Emerging markets such as China (48%) and India (39%) were highlighted as the countries expected to be most active for M&A in the year ahead.

The US (35%), Brazil (29%) and Germany (23%) completed the top five. The UK fell to eighth position from fourth last year, with only 12% of respondents expecting it to be the most active M&A market in the year ahead.

Over a third of the survey pool expressed a strong degree of optimism and nearly half a moderately positive outlook for deal making in the year ahead.

There are a number of drivers for this M&A surge. Consolidation is one key trend highlighted by 45% of respondents.

The study also underlined an anticipated upturn in opportunistic M&A with buyers expected to move quickly to catch bargains, possibly forcing the issue with hostile or aggressive acquisitions in uncertain market conditions.

Disposing of non-core assets, a trend seen through the 2008/9 downturn, is also expected to remain a key driver for 38% of sellers.

Matthew Albert (pictured), mergermarket’s director of research in its Remark division, highlighted the “sharp variations in country-specific attitudes” towards M&A across Europe.

German respondents were notably bullish about M&A in 2012, with 16% saying they were ‘extremely confident’ about the outlook for deal making next year. UK participants were more cautious with just 4% matching this level of confidence. No French respondents said they were extremely confident about M&A in 2012.

Germans were again more bullish on the likelihood of M&A activity increasing in 2012 with 72% saying they expected it to rise.

Just 48% of French respondents thought the same, and even fewer (40%) in the UK, where deal makers are facing new pressures due to changes to the UK Takeover Code soon to be added under Basel III and Solvency II.

Albert noted that on the whole, European deal makers are “confident that a strong appetite for growth, consolidation in key industry sectors and a backlog of private equity exits will fuel M&A activity through 2012”.

The key challenges for European M&A growth in 2012 is gaining access to financing (cited by 55% of respondents) and lingering economic weakness (cited by 52% of respondents). Political uncertainty was also high on their radar with 31% of respondents saying it would be the main constraint for M&A in 2012.

The study is the second released by NetJets Europe and mergermarket looking at the global M&A environment.

It examines the views of 150 European deal makers across private equity, investment banking, accounting and legal firms responsible for participating in corporate deal activity in the UK, France, Germany, Switzerland and CEE. Collectively participants were involved in deals in excess of €158bn in 2010.

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