European M&A industry expects deal volumes to grow by up to 19 per cent

After deal volumes surpassed the record mark of USD 1.7 trillion in 2006 European M&A professionals look forward to another bumper year, finds the third biannual M&A Monitor conducted for IntraLinks, the online workspace provider.

The survey respondents were M&A professionals focusing on the European market, including corporates, bankers, lawyers and advisors. The European M&A industry continues to be in high spirits - 95% are optimistic about future prospects.

Almost 60% of respondents believe that European M&A volumes will increase by up to one fifth in the next twelve months. Respondents focussing on the UK are the most bullish, with 20% expecting a potential growth of between 20-49%. While optimism in Italy has risen, M&A professionals covering France have become more cautious: 86% currently describe themselves as optimistic compared to 95% in April 2006. The UK (45%) and Germany (23%) are once again predicted to lead deal activity in Europe.

The survey highlights the increasing competition for attractive assets between European corporates and private equity firms. M&A professionals believe that the most common deal type in the coming year will be acquisitions by European corporates (31%) as well as transactions driven by European private equity houses (22%). This ties in with the results of IntraLinks' recent UK M&A Insight survey which found UK corporates highly optimistic and confident that they can successfully compete with private equity players.

The expectation that US private equity firms (21%) and Asian corporates (17%) will snap up European assets remains also strong, while only 3% of respondents identify purely domestic transactions as significant.

Almost a third of the survey participants (32%) see the highest level of M&A activity in the field of financial services. The energy sector - which was the favourite pick in September's M&A Monitor - is also expected to generate healthy deal volumes (19%). Respondents focusing on the UK still view energy as the most active industry (31%) in the next twelve months.

Among the emerging markets, Russia (34%) is considered the most attractive target for acquisitions, ahead of Poland (26%) and Czech Republic (14%). When it comes to emerging market buyers targeting European assets, India (30%) is expected to have the most acquisitive companies closely followed by China. Interestingly, respondents covering the UK picked the Middle East (36%) as the most acquisitive emerging region.

In terms of deal shapers, European M&A professionals give cheap debt (31%) as the primary reason for their optimistic outlook, closely followed by strategic causes (29%) and cash surpluses at corporates (24%).

As most decisive factor for the success of an M&A transaction the respondents cited the researching and understanding of potential buyers (26%), followed by the attractiveness of the sector (20%) and the responsiveness of the deal team (12%). Interestingly, the most senior respondents value the responsiveness of the deal team (17%) higher than the sector attractiveness (14%). This shows how significant the impact of a virtual dataroom can be on an M&A transaction since it allows the team to quickly respond to multiple questions and to multitask on deals.

As with September's survey, the biggest potential deal breaker remains the bursting of the loan bubble (26%), whereas the number worried about pensions valuations has tumbled from 19% to 6% since last Spring. Corporate respondents are most concerned about government and activist investor intervention (17% each). M&A professionals focussing on Italy also see intervention by activist investors as the main deal breaker (34%).

A competitive auction process is seen as the most important factor in raising the price of an asset. Especially investment bankers consider a competitive auction process decisive (46%) and even more significant than the competitive position of the business (30%) or the attractiveness of the sector (18%). Using a virtual dataroom to access more potential buyers can increase the number of interested parties and make for a more competitive bidding process.

Commenting on the survey results, Andrew Damico, Chief Operating Officer, IntraLinks, Inc said: 'After last year's impressive M&A volumes it's good to see that deal activity is expected to increase, with the majority of respondents predicting volumes to grow by nearly 20% in the coming 12 months. Increased sophistication and competition is evident in all markets, but the survey results also show a growing maturity in Europe's regional markets which is reflected in our expansion in Frankfurt, Paris and Milan. European cross-border transactions and European private equity firms will be driving the market. While the presence of private equity players is certainly being felt, European corporates are confident about their ability to compete in M&A transactions.'

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