M&A Time to Scale Up

History suggests that M&A activity tends to accelerate very late in the economic cycle, and that is when the biggest deals are struck. Indeed, at that stage companies have cash and profit margins have recovered, and thus organic growth expectations are decelerating. As a consequence, companies tend to look for external growth opportunities with the prospect of raising pricing power and tapping synergies.

Year-to-date acquisition volumes have reached $1.6tn globally and the number of deals has reached almost 14,000, with a global average premium paid of 24%. Acquisition volumes and deal count are both down this year in Europe, primarily due to reduced appetite from North America and Asia-Pacific. The data, however, suggest that European companies are turning from acquiree into acquiror, as recently illustrated by LSE's proposed acquisition of Refinitiv ($27bn) and LVMH's pending acquisition of Tiffany ($18bn). Comparing European companies' corporate policies with those of their US counterparts, Societe Generale equity strategists conclude that European companies have focused too heavily on paying dividends rather than on investing via capex/M&A, which is a key driver for growth and profitability.

Based on their proprietary model, and in close collaboration with the bank’s equity analysts, strategists highlight key European sectors that could be active in M&A and identify European companies that they believe could, based on their metrics, be potential M&A candidates. It is important to note that they are not basing their selection of potential M&A candidates on any ‘special information’ have, and certainly not on press speculation. All our information sources are public and our analysis is scientific and based on fundamentals.

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About Societe Generale Cross-Asset Research
Societe Generale Cross-Asset Research is composed of more than 200 Analysts, Strategists, Economists and Quant, combining their expertise into ‘Research-based’ and innovative solutions suited to client’ needs: fundamental studies and expert views, investment ideas and long-term strategies, trade ideas and tactical baskets, thematic and systematic indices, quant solutions. On top of its established UK and Western European base, Societe Generale Cross-Asset Research benefits from a global coverage thanks to its presence in the US and in Asia (Hong Kong, Singapore, Tokyo and Bangalore) and Societe Generale local networks in Eastern Europe.

Disclaimer
This editorial contains financial analysis which reflects the opinion of the Cross-Asset Research department of Societe Generale at the date of its publication. It does not necessarily reflect the views of the other departments of Societe Generale nor the official opinion of Societe Generale. This interview is dedicated to institutional and professional investors and is not deemed to be seen and used by retail investors for investment purpose. The viewers shall consult their own financial advisers to make their own appraisal.