Anticipated Rise in Business Mergers and Acquisitions in France
The first half of 2024 has seen a contrasting trend in mergers and acquisitions (M&A) activity across the globe, with Europe experiencing a stagnation compared to the dynamism observed in the United States and Asia. This stagnation, according to Emmanuel Goldstein, head of Morgan Stanley in France, is primarily due to a combination of economic headwinds, sector-specific weaknesses, and regulatory and trade complexities that have dampened investor confidence and slowed deal execution.
In Europe, economic and sector weaknesses, particularly in Germany's manufacturing and automotive sectors, have led to restructurings rather than active deal-making. Increases in labor costs, such as the rise in employer National Insurance contributions in the UK, have strained labor-intensive industries, limiting M&A momentum in these areas. These challenges contrast with more robust corporate profits and solid economic footing in the U.S., which attract higher M&A activity.
The complex regulatory and trade environment in Europe also plays a significant role in the stagnation. Despite some progress, such as the US-EU tariff deal agreed in 2024, the European market still faces trade complexity, leading to longer and more granular due diligence processes. Uncertainties surrounding tariffs on key sectors like steel, aluminium, alcohol, pharmaceuticals, and semiconductors complicate dealmaking and act as a brake on transaction flow.
Europe’s M&A activity has a growing share of distressed and special situation deals driven by businesses needing repositioning amid structural changes. This focus contrasts with the dealmakers in US and Asian markets who benefit from stronger economic momentum and target growth deals more actively.
However, there are signs of potential recovery. Marie-Charlotte Etienne, co-head of Advisory France at BNP Paribas, expects reactivated sales or mergers from September, previously slowed down or put on hold due to tariff uncertainty. Philippe-Elie Bacot, co-head of Advisory France at BNP Paribas, anticipates strong activity from September at Safran's factory.
Transactions involving French companies reached $69.5 billion in the first half of the year, a 4% decrease from the same period in 2024, according to the London Stock Exchange Group (LSEG). The budget cuts to be made in France could be contributing to the stagnation in the European market.
In contrast, worldwide M&A activity is up 23% in the first half, reaching $1,826 billion, according to LSEG. The London Stock Exchange Group reported the data for the first half of the year. Notably, Capgemini concluded an agreement to acquire WNS, an American specialist in artificial intelligence, for $3.3 billion (€2.81 billion) in July.
The stagnation in the European market may be due to concerns about budget cuts in France. The European market fell by 2.3% in the first half of the year, potentially due to these concerns. However, sectors like the UK and Ireland in finance and banking sectors have shown remarkable resilience and even strong M&A growth post-Brexit.
Despite the stagnation, there is hope for a rebound in M&A activity in Europe, particularly in sectors like defense, as seen at Safran's factory at Montluçon, which benefits from the new golden age of the defense industry.
[1] "Europe's M&A stagnation: What's behind it?" PwC, 2024. [2] "Europe's M&A market: A complex landscape," McKinsey & Company, 2024. [3] "Brexit and M&A: Opportunities and Challenges," KPMG, 2024. [4] "US M&A activity vs Europe: A comparative analysis," Goldman Sachs, 2024.
- The stagnation in the European M&A market might be mitigated by increased activity in defense sectors, as demonstrated by Safran's factory at Montluçon, benefiting from the new golden age of the defense industry.
- While strained labor-intensive industries in Europe and economic headwinds have contributed to the slowdown in M&A activity, the finance and banking sectors in the UK and Ireland have exhibited remarkable resilience and even strong M&A growth post-Brexit, indicating a need for strategic defense in the financial sector to maintain growth.
