30 August 2012

Crisis-hit eurozone countries still waiting for the M&A bargain hunters

One possible benefit of the continuing economic crisis affecting eurozone countries Greece, Spain and Portugal is the potential for bargains for companies and investors with money to spend. But it appears that this potential is not being realised, and the lure of rich pickings has so far failed to attract the floods of buyers that might have been anticipated.

According to the latest data from Zephyr, the value of M&A activity involving targets based in Spain and Portugal fell 39 per cent in July, from EUR 8,624 million to EUR 5,225 million, and was down 47 per cent compared with the same period in 2011. Volume was also less, and a lack of high-value deals suppressed the figures. At first glance, May appeared to be a much better month, as EUR 27,564 million of deal-making was achieved, the best result in over five years. However, upon closer inspection, it became clear that this was largely down to huge bank bailouts in both Spain and Portugal, an indication of just how hard the crisis has hit the two countries.

The picture is even bleaker in Greece, where the value of M&A deals stood at EUR 6,930 million in 2011, almost two-thirds less than the EUR 18,566 million reached two years ago. In terms of the number of deals done in the country, just 40 were recorded last year compared with 129 in 2010 and 203 transactions in 2009. 

Indeed, far from taking advantage of potential cheap acquisitions in these countries, companies have actually been selling up and leaving in droves. Many of these disposals have been by their respective governments – in Greece for example, finance minister George Papaconstantinou announced in May that stakes in five national enterprises were to be sold off: telecommunications operator OTE, Postbank, the ports of Athens and Thessaloniki and the latter city’s water company.

However, other exits have been by major corporate players such as French banking giant Societe Generale, which is reportedly offloading General Bank of Greece – better known as Geniki – in a bid to reduce its exposure to the country’s increased risk situation particularly affecting the banking sector. SocGen has already cut funding to the unit, and a sale is thought to be the next – and final – step in the process. Another French financial institution, Credit Agricole, is thought to be in talks to sell all or part of its stake in Emporiki, and has already received bids from Eurobank and Alpha Bank, and the country’s biggest lender National Bank is also expected to make an offer. And last month, Greek lender Eurobank Ergasias agreed to split from Swiss group EFG at the request of European regulators in an effort to focus its efforts on strengthening its position in the country’s banking system ahead of a planned recapitalisation. 

And it’s not just the financial sector that has been hit by this mass exodus - other sectors have also been suffering. In June, leading French supermarket group Carrefour reached an agreement to sell its 50 per cent share in Carrefour Marinopoulos to its joint venture partner Marinopoulos in a deal worth EUR 220 million.

While it is a pretty gloomy picture at present, nothing lasts forever, and M&A activity in troubled eurozone countries will return to former levels at some point. Indeed, some opportunistic buyers have already started to move in – back in April, far eastern conglomerate Hutchison Whampoa, owned by the Hong Kong businessman Li Ka-shing, made a EUR 2,000 million offer for Irish mobile phone network Eircom, which filed for examinership, the equivalent of bankruptcy protection. And in June another tycoon, Mexico’s Carlos Slim, increased his holding in Dutch telecom group KPN to just over a quarter, for around EUR 2,600 million.

So while we can be fairly certain that the time will come when the bargain hunters start to realise the potential on offer in these countries and move in when the time is right, the crucial question is – when will that be?

© Zephus Ltd