The tip of the iceberg
Transatlantic M&A is surging and shows no signs of abating. We expect the recent trend of US buying Europe to continue driven by FX, overseas cash, improving relative growth, and valuation. We believe the sectors most ripe for potential activity are European 1) Aerospace, 2) Machinery and 3) Hotels. Areas such as HealthCare and Tech also appear poised for further consolidation, though the direction of deal flow could be two-way
The Multi-Trillion-Dollar Question: Why?
Reasons behind the broad pick-up in M&A are well known with improved CEO confidence, declining policy uncertainty and record cash levels all contributing.
Cheap leverage could also be a catalyst. We estimate $2.1 tn and $940 bn of firepower in the US/Europe, respectively, and list the firms with the highest potential. What is less clear is what is driving cross-border volumes. We find FX does matter, though has a lagged impact. For a US-to-Europe view, overseas cash, tax synergy potential and improving Euro growth could provide additional tailwinds.
Ready, Willing and Able
We look for sectors that have (1) the motivation to transact (“willing”), (2) the financial means available (“able”), and (3) the presence of attractive candidates. On this last point, we utilize our departmental M&A framework and highlight stocks our analysts see as having at least 15% probability of strategic M&A over the next 12 months.
Taking the temperature of M&A
• Hot: Global M&A volumes are on pace to be up 18% yoy, but at 5.8% of the world’s market cap it’s still below the 20-year average (6.7%). Further announcements of $650 bn would close the gap.
• Hotter: Cross-border M&A volumes have comprised 26% of global activity YTD, significantly above the 20-year average of 21%.
• Hottest: US acquisitions of European companies area trending to be up 32%, outpacing both overall global M&A volume growth (+18%) and total cross-border M&A volume growth (+27%).