* The European economy is recovering, so companies may be more willing to take M&A risks again;
* Company balance sheets have been rebuilt, thus allowing companies to partly finance M&A by debt in a very favourable environment;
* Pricing power is under pressure with the result that companies need to react to and shape the competitive landscape. The low inflation environment means many industrial sectors may be facing deflation. When deflation is coupled with very low growth, companies need to 1) reduce pricing pressure and 2) find new ways to grow if they want to deliver the EPS growth expected by the market. As we discussed in our previous report, we believe that pricing power is probably the most convincing argument in favour of M&A. The paradox is that this argument can almost never be used as it would trigger inquiries by anti-trust bodies. As a result, companies often choose to present very high synergies to justify these deals. Most of the time, these synergies are clearly overestimated and often calculated backwards, i.e. companies calculate the amount of synergies needed to justify a deal in the absence of a price effect. We believe we are at the beginning of this M&A wave which will continue this year and next. We have observed the usual M&A cycle described in the note