European M&A Activity Bounces Back With Highest Number of Deals in Over Two years

The number of European mergers and acquisitions (M&A) rose to its highest level in over two years as companies look to expand their businesses in line with the improving economic situation in the region following the financial crisis.

The number of deals in Europe rose for the second consecutive quarter, following a slump in the final quarter of 2013, according to research by professional services company Towers Watson and Cass Business School.

As many as 34 deals worth over $100m (£58.8m, €73m) have been completed in Europe so far in the second quarter – the highest in the region for over two years, according to the Towers Watson Quarterly Deal Performance Monitor.

"M&A in Europe seems to have bounced back to normal levels now following the continual decline in number of deals throughout 2013, which left levels at rock bottom by the end of the year," said Steve Allan, M&A Practice Leader at Towers Watson.

"We are seeing corporate confidence gradually returning this quarter, with more companies prepared to see inorganic growth strategies through to fruition."

M&A Deal Outside Europe

North America accounted for more than 50% of the total number of deals completed across the globe. However, deal volumes remain low in the region compared to the previous three quarters.

In Asia-Pacific, deal volumes continued to increase in the second quarter, but they were below European levels for the first time in a year.

Business Performance of Acquirers

The research noted that acquiring companies across the globe have significantly outperformed the market so far in 2014. Globally, acquirers outperformed the market index by 7.9 percentage points over the year to date.

The share price performance of acquirers within the quarterly study was measured as percentage change in share price from six months prior to the announcement date to the end of the quarter.

In Asia, acquirers' financial performance was 23.1 percentage points above the regional index, while it was up 6.2 percentage points and 3.1 percentage points in North America and Europe, respectively.

"It is apparent that bolder companies, which are willing to take calculated risks in the M&A arena, are reaping the benefits by consistently performing better than their more conservative peers," Allan said.

Although both cross-sector and intra-sector deals outperformed the index, cross-sector deals outperformed by 15.8 percentage points, compared to intra-sector's 4.4-percentage-point growth.

In addition, deals above $1bn outperformed medium-sized deals with an 8.8-percentage-point growth.

Allan noted that certain $10bn plus deals that were expected this year are yet to be completed.

"While a number of the high-profile mergers and acquisitions that have been announced in recent months have not made it to completion, I expect this to change as confidence continues to grow in the second half of 2014," he added.

A mammoth deal proposed by Pfizer to acquire rival AstraZeneca fell apart during the quarter, while GE's mega deal with Alstom is still to be completed.