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Deals and prospective deals create optimism about European M&As
by Shant Fabricatorian
After years of lacklustre activity, M&A and LBO green shoots are emerging in Europe. Credit markets are wide open and eager to provide financing to back the deals.
The headlines have been ripe with whiffs of big transactions to come. Among them, private equity group TPG and Singapore sovereign wealth fund GIC recently inked a deal to buy German energy firm Techem Group for USD 7.5bn. And French pharma giant Sanofi is fielding offers for its USD 20bn consumer health unit.
“There are a good number of potential deals around, so activity is certainly much stronger this quarter in terms of prospective M&A situations than it was earlier in the year,” said Charlotte Conlan, vice chair of global leveraged finance at BNP Paribas.
Take-private deals in particular have taken off. The sector is on pace for one of its best years in the past decade, according to a Mergermarket report looking at data to the end of September. Valued at around USD 67bn, this subset of buyouts has already surpassed the total sum for 2023.
Moreover, according to the 2025 European M&A outlook from global law firm CMS (published in association with Mergermarket), nearly two-thirds of deal-makers expect the level of European M&A activity to increase in the next 12 months. This includes 20% who say it will rise significantly.
Increasingly, private equity barons and corporate boards are tapping public debt markets for deal financings. That’s a return to form compared to 2022 and 2023, when worries about rising interest rates and the potential for a recession weakened the leveraged loan market and pushed borrowing to private credit funds.
According to Alex Robb, a finance partner at Ropes & Gray in London, the debt market is no longer the limiting factor it was back then. “The credit funds could only stretch it so far,” he said. “But now, the liquid market can give you deal certainty and terms certainty to the point where it is a viable alternative and more large deals can clear.”
The biggest complaint of leveraged loan investors — mostly comprised of CLO managers — has been the dearth of new leveraged loan supply. While the European market entered the autumn with a robust pipeline, that has quickly sold, with little to replenish the coffers.
There are a good number of potential deals around, so activity is certainly much stronger
Charlotte Conlan
Vice chair of global leveraged finance
BNP Paribas
But while the general outlook is positive, there is an expectation that the US election will put a handbrake, albeit temporary, on loan issuance toward the end of the year in Europe. “It’ll be really quiet after the US elections,” said Gauthier Reymondier, partner and head of credit for European liquid and structured credit strategies at Bain Capital. “You need to absorb whatever news comes from the election, and they need to relaunch the slate of new deals.”
M&A and LBO deals take time to wrangle. In addition, these are signs of recovery for M&A and LBO, not an open floodgate.
“There are a number of underwrites yet to be brought to market, but banks typically have two or three underwriting positions, not 10 or 12. The focus now is building the pipeline for Q1 2025,” said Conlan.
Though optimism abounds, there’s no guarantee that merger discussions will crystallise into deals. Market participants do note some ongoing risks. The prospect of an oil price spike as a result of tensions in the Middle East is rising on the macroeconomic front. The valuation gap, though narrowing, remains. And interest rates may not drop as swiftly as expected.
Some are cautious in their predictions. “Speaking to a few of the large players, I think they are seeing Q2 as really opening the door a bit more to M&A opportunity,” said Marta Stojanova, director of leveraged finance at S&P Global Ratings.
