‘Drowned’ agreements expected in 2010
Posted on December 28, 2009 by Shay Greenberg for Luckyroom.com
The European investment banks are hoping that 2010 will mark not only the end of the two “drought” in front of mergers and acquisitions, but a “flood” of big business. Some analysts, however, warn that these hopes may prove to be false. History has shown that recovery of large corporate deals have six to nine months after the recovery in equity markets. As shares in Europe and in other developed and emerging markets are running in the last nine months in orbit increases, investment banks have reasons to believe that an imminent wave of agreements is coming up. Alongside a recent survey by UBS and the Boston Consulting Group for 19% of CEOs of major European firms stated that they may pursue the acquisition of a company with sales of at least 500 million. This was the percentage of businesses that have gone to a takeover or merger in 2006 – ie the last good year for the partnership agreements.
The “may” but is far from ‘is’. For this particular investigation and from the CEOs who say they are considering purchase only 25% have used the word “very likely” or “confident” for such a move. There is certainly a climate of optimism, making many firms oriented to dynamic investment. But there are also a number of factors, which could ultimately discourage them. The biggest “crunch” seems to be the cost. Much of bidders say that valuations are too high because of the race of the shares. This is not even taken into account the premium, usually offering the buyer value on the current value of shares of a company.
On the other hand many of the companies that are potential targets do not seem ready to succumb to offers or to sell part of their activities, and expect that the stock market rally will continue and therefore the stock value will increase further. A second major obstacle that could be found in front of them European companies is that of funding. Although the capital markets have reopened for business, banks remain highly reluctant to grant large loans. All this does not mean that we will have mergers and acquisitions in Europe next year. But they will probably move below expectations. Forex traders are recommended to be aware that the European acquisitions will have an immediate effect on the exchange rate of the USD to the the Euro.
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