European M&A to advance after "lost year"-UBS poll

Tue Nov 30, 2010 12:59pm GMT

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* Two-fifths of firms say cancelled M&A plans in "lost year"

* Only 6 pct see buybacks or dividends as best use of cash

* Croda, Misys, Meggitt, Wolters among UBS's top M&A picks

By Quentin Webb

LONDON, Nov 30 (Reuters) - More than a quarter of bigger European companies aim to make a sizeable takeover next year, a survey showed, as a drive for growth spurs executives to put a "lost year" for mergers and acquisitions (M&A) behind them.

After plummeting to a six-year low last year, dealmaking in Europe has failed to match a rebound in company profits and financial strength, as a string of sovereign debt crises have made markets volatile and dented corporate confidence.

However, the UBS and Boston Consulting Group (BCG) survey, released on Tuesday, showed 29 percent of companies with a market value of 5 billion euros ($6.5 billion) or more aimed to buy a rival with at least 500 million euros in sales next year.

Many companies have already cut costs and paid down debt, and are now grappling with how to generate growth against a sluggish economic backdrop.

Dan Stillit of UBS said the survey showed "measured optimism" among European executives, who were moving away from de-leveraging. "Corporates seem to be back in growth-seeking mode," he said in an interview.

More than half of respondents said growth through deals (28 percent) or organic investment (29 percent) was the most effective use of cash, rather than debt repayments (21 percent) or returning cash to shareholders (6 percent).

The survey, of 179 senior executives, was conducted in September and October -- before deepening concerns about Ireland's finances forced it into an 85 billion euro bailout.

However, Stillit said European companies were also becoming hardened to sovereign credit worries: "Europe is taking the Irish bailout in its stride much better than it would have done a year ago." But he added: "If market volatility continues stepping up, that's the number one risk to M&A."

The survey found about 40 percent had cancelled M&A plans this year. "2010 was a 'lost year'," UBS said.

Thomson Reuters data shows announced M&A targeting Europe has hit $534 billion in 2010, just 2 percent ahead of the first 11 months of 2009.

A third of respondents also said they were likely to pursue "deal-based restructuring" next year, by selling or floating units or injecting assets into joint ventures.

But almost two-fifths complained that the high price of potential targets was the top barrier to deals, and while two-thirds wanted to push into emerging markets, only 18 percent aimed to do so via acquisitions.

UBS recommends 10 European companies as likely bid targets: Meggitt (MGGT.L), National Express (NEX.L), Croda (CRDA.L), Symrise (SY1G.DE), Temenos (TEMN.S), Misys MSY.L, Wolters Kluwer (WLSNc.AS), Virgin Media VMED.O, Klockner (KCOGn.DE), and TalkTalk (TALK.L). (Editing by David Cowell)

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