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The first half of the year was a good one for stock markets generally, but also for mergers and acquisitions (M&A) in Europe too. Investment bank Goldman Sachs has noted that 2016 had been a lacklustre year for corporate activity, but that could be about to change.
The bank has said that, in euro terms, M&A involving European firms is up 50% so far this year, and now makes up about 26% of global M&A activity, up from 17% a year ago. A rising stock market, with the EU Stocks 50 up around 6% this year, tends to be positively correlated with M&A activity, since rising stock prices are both an indicator of confidence and mean that acquirers will be able to offer more attractive terms in combined stock-cash deals.
Further helping the situation is a fall in borrowing costs for European firms, which have seen the cost of debt return to its declining trend, after a spike into the end of 2016. As a result, boards will feel more able to finance acquisitions through borrowing.
It is particularly interesting to note that the UK is heavily represented among the firms highlighted by Goldman, with companies listed on the FTSE making up around a third of those identified as potential targets. Sterling’s weakness has certainly played a part, making these firms more attractive on a relative basis to buyers from the US and Europe.
Among the notable names highlighted from the UK, members of the FTSE 100 include Imperial Brands, Diageo and Unilever, while FTSE 250 members include Tullow Oil, Rotork and IMI.
Imperial Brands
Imperial’s share price has been in steep retreat since April, having hit its 2016 downtrend in the middle of that month. Some support is being found at £34.22, but a bigger drop will take the price to the December 2016 low at £33.27. The current descending trendline from the April high will need a break above £35.54 to suggest a turnaround is in play.
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