This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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.
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.