Why is European M&A so slow right now?
In the past two weeks, I’ve received numerous calls asking to explain why the M&A market in Europe was so slow in April. Some of my comments have appeared in the Wall Street Journal and Financial News in articles entitled ‘Europe M&A Lags Behind World‘ and ‘European M&A set for worst month in a decade‘ respectively. I’ve had inquiries from other reporters both in the US and here in Europe.
The questions arise because, in April, Europe represented only 15% of the global market activity, which is the lowest monthly proportion of global M&A since August 1998, when Europe made up 11%. But it isn’t only on a relative basis, and this can’t be explained solely on the growth of M&A in other regions. As Liam Vaughan wrote in one of those above articles, ‘April has also been dire for European M&A in terms of both the total value and number of deals. Not since August 2001 has the total value of deals been less and not since August 2004 have there been fewer deals.’
Why is this happening? And why now?
As I have noted on several occasions on this website (see ‘Mergers & Acquisitions and Behavioural Finance‘) and elsewhere (as in the Financial Times in a special section ‘Deals and Dealmakers’ in March that had an article that I authored entitled: ‘A tough challenge for M&A markets’), M&A markets depend on CEO and board-level confidence to be high. In Europe, a ‘perfect storm’ of uncertainty has arisen over the past several months, including most notably the Greek debt crisis with fears of contagion to other European states and the uncertainty over the British elections. From the vantage point of today, both were certainly valid concerns: the Greek crisis continues unabated and here in the UK we have had an inconclusive election leading to the first hung parliament since 1974.
Another factor is the rise in cross-border M&A activity. CEOs need even greater confidence to do a deal outside their own country. In Europe, as Cass Business School reported together with Towers Watson in the recent Towers Watson Quarterly Deal Performance Monitor, cross border deals are only 27% of the North American M&A market, but represent 60% of European activity in the first quarter 2010. With the uncertainly in foreign exchange levels due to the euro turmoil surrounding Greece, it is no surprise that companies are avoiding taking a stance on Europe at this moment. Also, it is generally accepted that cross-border deals are more difficult to conduct, and thus if they represent more of the European M&A market, again this contributes to the slowdown in activity in a time of uncertainty.
Will there be a change soon? I think not. Again, as I have noted here in March (‘Another view on the M&A Market in 2010 and 2011‘) and before that terrible month of April, there will be stickiness at these lower levels of activity for a while.
Intelligent Mergers 
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