Although the year ahead is likely to see a slight uptick in strategic mergers and acquisitions (M&A), opportunistic activity will remain rare, driving lacklustre overall M&A activity for Europe, the Middle East and Africa (EMEA) corporates in the near term, says Fitch Ratings.
The credit ratings agency (CRA) believes that a fragile economic recovery in the eurozone and early tapering of the US Federal Reserve’s quantitative easing (QE) programme will likely offset slowly rising enthusiasm stemming from a gradual market improvement, as well as rising stock markets.
However, sector disparities will persist, with rising structural M&A in the telecoms sector compared with limited activity across pharmaceuticals and natural resources. The telecoms industry is undergoing high levels of strategic and structural M&A, primarily due to increasing competitive challenges and high investment requirements, which drive the need for further industry consolidation.
In western Europe, a successful merger between E-Plus and O2 Germany could strengthen M&A activity in serving as a reference for authorities in other markets.
Activity in the pharmaceutical sector will be affected by what Fitch dubs ‘the patent cliff’, notably for the UK’s AstraZeneca, which could embark on mid-large scale acquisitions for drugs in late-stage development or for established brands.
In natural resources, Fitch anticipates muted M&A in the mining sectors as cash generation will remain constrained by range-bound commodity prices and lingering demand pressure. However, the focus of oil and gas majors on boosting reserves and production capacity provides a springboard for future deal flow.
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