European M&A Survey 2007, by DLA Piper

Access the full survey here.

New research from international legal services organization DLA Piper reveals no end in sight for the M&A boom witnessed in 2006, with one third of European corporations and almost 40 percent of private equity houses expecting their acquisition rate to increase over the next two years. Only one in ten corporations and one in nine private equity houses forecast a decrease in their M&A activity over the same period.

The research was conducted with over 240 European organizations, comprising both corporations and private equity houses that have participated in the recent M&A cycle. It revealed that, as competition for deals has intensified, buyers are looking further a field for acquisition opportunities. A quarter of corporate buyers see Eastern Europe as a region that presents a number of interesting targets, whilst 20 percent cited Asia as a particular hot spot (with China and India highlighted). Despite this broadening of geographic horizons, Western Europe remains high on the priority list for corporations seeking further acquisition opportunities.

The survey revealed that, in addition to geographies, few industry sectors are considered off limits. The financial and business services sectors remain especially in vogue, with approximately 40 percent of respondents in these industries predicting increased acquisition rates and only 5 percent anticipating a decline.

Despite the M&A boom, only one in five corporate buyers rates their acquisition strategy over the last three years as "highly successful", and less than a quarter believe they have "nothing to improve on" in relation to their approach to acquisitions.

In addition, buyers are struggling to streamline their M&A processes. Although European corporations recognize that speed of execution is critical in a competitive M&A environment, many are consistently underestimating the time it takes to complete an acquisition, with almost 50 percent indicating that the average acquisition takes more than six months. Four in ten acquisitions by private equity firms are also taking longer than anticipated. Contributing factors include the increasing size and complexity of deals and insufficient planning and preparation.

European corporations and private equity houses continue to emphasize the need for contractual cover as part of the M&A process. Although there is a growing appreciation of the availability and potential benefits of warranty and indemnity insurance, only 3 percent of buyers feel that this concept is "always suitable" as a means of bridging the risk gap between buyer and seller. Indeed, more buyers (10 percent) still consider such cover "never" to be appropriate as a means of mitigating risk.

Bob Bishop, Head of European M&A at DLA Piper: "It is encouraging to see that there is no sign of the current M&A boom running out of steam. However, as competition intensifies, there seems to be a general acceptance amongst buyers that areas of the acquisition process can be improved upon, particularly in the planning and preparation stages. Despite an acknowledgement that speed of execution is a critical factor in a competitive environment, many deals are still taking longer than anticipated.

"By streamlining acquisition processes, applying a more balanced methodology to measuring success and shifting focus away from execution to include more emphasis on integration, both corporates and private equity houses alike should be able to improve their current acquisition strategies. This should place them in good stead for M&A opportunities over the year ahead."

Access the full survey here.