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The skyscraper offices of global financial institutions including Citigroup, Barclays and HSBC stand on the city skyline in Canary Wharf in London, UK. File photo: BLOOMBERG/SIMON DAWSON
The skyscraper offices of global financial institutions including Citigroup, Barclays and HSBC stand on the city skyline in Canary Wharf in London, UK. File photo: BLOOMBERG/SIMON DAWSON

If 2021 was a big year for European deal making, 2022 could be even better, with potential buyers seeking to put increasing amounts of cash to use.

M&A in the region is on course for its best year since 2007, with the value of all pending and completed deals standing at $1.8-trillion, according to data compiled by Bloomberg. That represents “almost two years in one”, according to Philipp Beck, head of Europe, the Middle East and Africa M&A at UBS Group.

For 2022, Citi strategists led by Beata Manthey forecast growth of 15% in deal making. Morgan Stanley’s event-driven desk is also optimistic, noting that financial sponsors hold record firepower of more than $900bn for potential deals and continue to raise funds.

The UK is Western Europe’s M&A hotbed right now, accounting for more than 32% of deals in 2021. Bidders are being attracted by valuations that have been depressed by factors such as the effect of Brexit on supply chains. British equities trade at a discount to global peers of about 40% in terms of forward price-to-earnings ratio and 45% if you look at the price-to-book.

“There’s still so many listed companies that are extremely cheap” in the UK, said Toby Clothier, head of the global thematic and strategy team at Mirabaud Securities, adding that he doesn’t expect private equity M&A to slow.

In terms of industries, grocers and food delivery platforms are likely to remain firmly on M&A radars after the 2021 takeover of Wm Morrison Supermarkets and speculation of a bid for France’s Carrefour. 

“Quick commerce will definitely remain a hot topic in 2022,” said Bryan Garnier analyst Clement Genelot, who expects M&A activity among traditional food retailers to be more active in the second half of 2022 once France’s presidential election has taken place. And according to JPMorgan Chase’s Marcus Diebel, “food delivery needs consolidation”.

Telecoms is another area to watch, with KKR’s preliminary bid for Telecom Italia being the latest in a wave of deals across the sector. JPMorgan analyst Akhil Dattani expects 2022 to deliver “record levels” of telecoms M&A, based on favourable regulatory change.

In terms of individual stocks, Societe Generale strategists led by Roland Kaloyan have identified a number of potential targets in Europe based on valuation criteria. Their basket — including Nokia Oyj, ITV, Klepierre, Worldline and Weir Group — is a way to get some “value exposure”, benefiting from rising US bond yields, with an optionality on M&A, they said.

“Corporate balance sheets are full of cash,” and still-low interest rates are supporting the extension of a new M&A cycle, the SocGen strategists said in their equity outlook for 2022.

Bloomberg

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