European M&A still in first gear

Dec 09, 2011
<p>Survey of 148 senior executives finds a lack of suitable targets and high valuations are holding back activity</p>

There remain significant barriers to an uptick in European M&A activity, according to a new report of senior executives by UBS and the Boston Consulting Group.

While one in six respondents expect to make a large-scale acquisition in 2012, the unavailability of suitable targets and high valuations are dampening broader appetite for deals.

The top barrier to M&A cited by respondents is the lack of targets which are problem-free and a good strategic fit – 45 percent made this point.

Almost two-fifths of respondents – 39 percent – also think high valuations are holding back acquisitions. That's despite the fall in stock markets this year brought on by the euro zone debt crisis.

Best use of cash

Companies are also focusing on growth and view dividends and buybacks as less of a priority, according to the survey.

When asked what is the best possible use of their balance sheets – which UBS says are at their highest levels in eight years – 64 percent say investment in growth through M&A or capital expenditure, while just 7 percent say buybacks and 2 percent say increased dividends.

‘Industries haven’t stopped evolving and the growth imperative hasn’t dissolved,’ comments Daniel Stillit, head of special situations research at UBS, in a release.

‘Beyond that stable core of one in six, there’s a swath of companies needing to transact but not yet willing to take on plain-vanilla or more complex deals without a bigger price discount.’

This year, 148 CEOs and senior managers from public companies in Europe took part in the survey.

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