Europe Mergers and Acquisitions 2012 Review: Top 5 Deals

Being a year characterized by a general economic slowdown globally, 2012 has not seen much action in Europe's mergers and acquisitions (M&A) market. The financial crisis in the region has been a major hurdle for companies to go for transactions involving big sums.

As the economies are struggling to regain stability, many companies have remained cautious and stalled their expansion through the M&A route, despite strong balance sheets and availability of cheap finance.

The companies display a lack of confidence in markets and the broader economy. They find it more difficult to base buy-and-sell valuations on prices and business projections.

Europe targeted M&A volume amounted to $697.0bn in 2012, according to data from Dealogic. This was down 14 percent from $811.6bn recorded in 2011 and the lowest annual volume since 2003.

Deal volumes reached $188.3bn in the fourth quarter, up 39 percent on the third quarter and up 6 percent on the fourth quarter of 2011.

The region's overall activity was hurt primarily by lower volumes in France, Spain and Italy. France targeted M&A volume was down 60 percent at $37.9bn in 2012, while it went down 55 percent to $36.7bn in Spain and 53 percent to $31.0bn in Italy.

UK Bucks General Trend

Despite a general decline, the UK recorded a 6 percent year-over-year increase in transactions to $143.9bn in 2012. Cross-border volume of $90.1bn represented 63 percent of total UK targeted volume, the highest share on record.

Europe's outbound cross-region M&A reached $168.6bn in 2012, up 12 percent on 2011. The UK was the most acquisitive nation with $34.6bn worth of deals, despite a 43 percent year-over-year decline in transaction value.

In Switzerland, outbound acquisitions more than doubled in 2012 to $34.0bn to become the second most acquisitive country outside of Europe.

Top 5 Transactions in Europe in 2012

Following are the top five European M&A deals in 2012:

1. Rosneftegaz's acquisition of TNK-BP's 50 percent stake

Russian state-owned oil company Rosneft is acquiring BP's 50 percent stake in embattled Anglo-Russian Venture TNK-BP for €41.7bn. Announced in October, the deal is the largest globally in 2012 and it makes the oil and gas sector one of the most targeted in Europe. The acquisition is expected to close in the first half of 2013, subject to regulatory approvals.

2. Glencore's Merger with Xstrata

The €29.2bn deal in February by the Swiss companies is the second-biggest globally and it made the mining sector the third most-targeted in Europe in 2012. The mega merger, creating a natural resources giant, has been approved by the shareholders of both companies and EU regulators. It is awaiting approval from China and South Africa.

3. Spain's restructuring of Bankia SA

The €19.5bn restructuring of the Spanish bank, by acquiring its troubled real estate assets, is the third biggest deal in Europe. The government has taken a 45 percent interest in the publicly-traded bank, which has suffered from a massive housing bubble in the country.

4. Spain's rescue of Banco Financiero y de Ahorros (BFA)

Spain has also nationalised Bankia's parent BFA in a €19.0bn deal. The Spanish government-owned bailout fund Fondo de Reestructuracion Ordenada Bancaria (FROB) is injecting a further €13.5bn of rescue money into BFA, on top of funds provided earlier, via the sale of new shares in BFA to the FROB.

5. Anheuser-Busch's takeover of Grupo Modelo

Belgium's Anheuser-Busch agreed to acquire Mexican brewer Grupo Modelo's 50 percent stake that it does not already own for €16.2bn. Grupo Modelo sells beer under 13 different brands, including Corona Extra. The deal was reached in June and it received approval from Mexico's foreign investment commission and competition commission.

Deals in General

There were about 14,500 M&A transactions in Europe in 2012, down 20 percent year over year, according to data compiled by the Institute of Mergers, Acquisitions and Alliances (IMAA).

In terms of value, the financial services sector accounted for 42 percent of all deals, while energy and power represented 13 percent and materials 10 percent. Financial services were the most active sector with 38 percent of all deals recorded, followed by industrials with 11 percent.

"Some of the biggest European deals have been influenced by the eurozone cris and bailing out of European banks, in particular in Spain," IMAA President Christopher Kummer told IB Times UK.

While many companies were in a position to capitalise on the favourable conditions for M&A transactions, they were cautious due to the economic uncertainty in the region.

"Much of the corporate sector and strategic investors are very cautious and do not really take advantage of the favourable M&A market conditions. The private equity investors are to some extent still limited in their financial engineering due to the insecure times in the banking sector," said Kummer, who is also a professor at Webster University and Hult International Businesss School.

Deutsche Bank No. 1 in Volume Ranking

With 128 transactions with a value of $264.9bn in 2012, Deutsche Bank topped the list of M&A advisors. The bank generated revenues of $317m from the deals, according to Dealogic.

Goldman Sachs advised 160 deals worth $258.9bn in 2012 to claim the second position in the list, followed by Morgan Stanley that advised 123 deals worth $239.8bn.

No Improvement Expected in 2013

European companies are enjoying a strong balance sheet, but their growth prospects in their markets are limited due to adverse conditions. In the scenario, mergers and acquisitions play an important role in the growth of the companies.

Analysts do not expect an improvement in M&A activity in fiscal 2013, as companies refrain from taking risks due to uncertainties.

"European strategic investors are still very hesitant and do not see the huge opportunities that exist in M&A when most of the potential players refrain from any such activities when carried out the right way. While financial investors experience difficulties in implementing their business models given the difficulties in the financial markets," Kummer added.