In mergers and acquisitions, Olswang's activity reflected two of the biggest M&A trends globally: Asia's growth and Europe's attraction for overseas buyers.
As the Asian economy continued to grow, Olswang's M&A team received increasing inbound and outbound M&A and investment deals, in particular instructions from existing clients looking to access the growing markets of South East Asia. But the European market was surprisingly active as well.Despite serious problems in the Mediterranean countries and continued anxiety over the future of the euro, mid-size company purchases, particularly by private equity (PE) firms, heated up in 2011.
Overall, Asian M&A values dropped in 2011 by 10.8%, to $336bn*, but the appetite for deals in technology, media and telecoms (TMT) has increased and the pace of that growth is accelerating. TMT represented 15% of regional M&A activity in 2011, a number that is expected to rise to 22% in 2012, although the latest H1 figures highlight activity in excess of 30% of the total Asian M&A market.
The development of TMT companies in Asia,and the investment in those companies, are being driven by government support focused on TMT, a burgeoning consumer appetite for media and technology as disposable incomes grow,investments by European and American companies seeking to access increased revenues from the large consumer markets in Asia, and the increased presence of private equity and financial investors in the region.
At the same time, Asian companies seeking cross-border deals may be looking more towards Europe. With the Sterling and the Euro now relatively weak, European investments are increasingly attractive to overseas buyers. In the first six months of 2012, the total value of deals conducted in Europe by foreign companies has reached $101bn, with North American companies accounting for close to 60% of the buyers of European targets**. Cash-rich Asian companies that want to access more sophisticated technologies, intellectual property portfolios, distribution networks and higher levels of consumer spending, may well look to capitalise.
Europe remained one of the world's biggest M&A markets in 2011, with nearly $698bn deals reported*. Mega-deals may be few and far between, but transactions are growing at the mid-market level ($50m-$500m). We're finding that our PE institutional clients still have a strong appetite for Europe-wide assets that generate good cash flow.
Buyers are sector-neutral, but focused largely on northern European companies. One sign of the degree of enthusiasm PE strategists have for cash-rich mid-market companies is that they are not waiting for banks to re-open their balance sheets, but are instead self-financing the debtportion of the deals, with a view to refinance 18 to 24 months down the line. They are taking on that added risk because after four years of little action in the market, PE funds are under pressure to put their cash to work.
With fundraising on the horizon for many, they need to prove to investors that they are capable of doing deals. That won't lead to a deal at any cost - PE funds are still discerning in terms of a target, but there's a little more aggression in the market.
For sellers, that's good news. Multiples in Europe are running at 7-9 times EBITDA for quality assets that are capable of strong growth. Remarkably, apart from buyers showing reluctance to purchase Mediterranean assets, economic uncertainty does not seem to be holding deals back. Nor does the volatility of the market seem to worry buyers. Sharp swings in the stock market are simply a fact of life in these present times.
In sectoral terms, technology is being greeted with enthusiasm. We continue to see a predominantly sell-side technology market for M&A. UK and European start-ups are proliferating, but most tech M&A action now is being driven by the US because Europe lacks the major technology conglomerates that are the obvious suitors for these kinds of companies. US technology giants looking for growth have set their sights on smaller, fastgrowing UK and European companies. In 2011, we advised NVIDIA Corporation, a world leader in visual computing technologies, on the UK aspects of its acquisition of Icera Inc. while we also acted for the shareholders of goviral A/S, a London-based distributor of branded video content across the internet, on the sale of goviral to AOL.
Other sectors are also showing strong signs of health. Interest in corporate real estate activity is now strong, particularly in the German market. That's a reversal compared with three or four years ago when, in Berlin for example, the asset class was very weak. It is the alternative option that's driving interest. For investors in German real estate, part of the appeal is the alternative to the potential opportunity: why sit on cash in an account that is paying 0.5%?
In hospitality and leisure, Asian family-owned conglomerates may provide a source of growth as they look to buy European hotels to diversify their asset base. We predict more activity in that sector.
As the trend for inbound M&A deal activity in Asia continues to gather momentum and the trend of Asian buyers looking towards the UK and Europe for potential targets increases, this pace of change is unlikely to slow anytime soon.