Transatlantic M&A bull run set for comeback

Encouraged by the relative strength of the dollar and improving financing conditions, US bidders are snapping up European assets

Transatlantic M&A was enjoying record-high activity before the war in Ukraine sparked geopolitical turmoil and public market volatility that slowed dealmaking. From a combined US$239.24 billion in 2021, the total value of deals involving US bidders targeting companies in Western and Central & Eastern Europe fell to US$84.6 billion for 2022, a 65 percent year-on-year decline.

This year has brought greater stability for dealmakers, though, as declining inflation and improving financing conditions create a healthier climate for M&A that appears to be bolstering US dealmaker confidence in Europe. The value of transatlantic deals targeting assets in Western and Central & Eastern Europe reached US$52.7 billion in H1 2023, a 47.4 percent year-on-year increase, thanks largely to a spike in aggregate deal value in Q2 of just under US$42 billion. However, deal volume dipped by 18.5 percent over the same timeframe, with a total of 437 deals in H1.

The strength of the dollar, which reached a two-decade high against other major currencies in September 2022, has been a major driving force behind this increased spending. While its value weakened slightly this year, exchange rate volatility is expected to stay high as the risk of recession continues to cast a shadow over the world economy. This, in turn, will create opportunities for US investors looking to acquire European assets.

Energy transition fuels transatlantic M&A

The global net-zero agenda continues to be a major catalyst for M&A, and transatlantic dealmaking is no exception. Indeed, one of the largest deals of the year so far saw Carrier Global acquire Viessmann Climate Solutions, a manufacturer of heat pumps and other climate-friendly heating services, for US$13.2 billion.

The deal is part of Carrier’s plan to reposition itself as a pure-play leader in energy transition-focused heating solutions. The transaction is the latest in a series of strategic measures by the company to help reach its 2050 net-zero target for both direct and indirect emissions.

US firms are also buying into Spain’s fast-growing renewables industry. In January, US solar power operator Sonnedix acquired a 136MW Spanish solar portfolio from local investment firm Qualitas Energy to further expand its global network, which already spans ten countries and exceeds 8GW of total capacity. Sonnedix quickly followed this up with another two deals in Spain. In March, it secured two solar farms totaling 2.4MW from Madrid-based Altano Energy, and a third 3.6MW plant from a local family-owned business. In May, it signed a ten-year solar power purchase agreement with Equinix, a Spanish real estate investment trust active in the energy-hungry data center market.

Spain is currently leading Europe’s renewable energy charge and is on track to generate more than half of its power from renewable sources this year. The country’s ambitious goal of generating 74 percent of electricity from renewable sources by 2030, and 100 percent by 2050, will require widespread investment in the sector.

US agribusiness giant buys into Europe

One of the largest transatlantic deals of H1 2023—US crop merchant Bunge’s US$8.2 billion merger with Netherlands-headquartered Viterra—highlights the intense competition within the global grain trading industry. Both businesses have seen profits soar following Russia’s invasion of Ukraine, which caused unprecedented volatility in global commodity markets.

The merger between Bunge and its Glencore-backed competitor will give it the necessary horsepower to compete with market rivals, as the companies’ combined revenue in 2022 amounted to an estimated US$121 billion. To put this into perspective, US-based Cargill, currently the world’s largest grain trader, posted revenues of US$177 billion in its fiscal year that ended in May 2023.

The deal looks set to face regulatory scrutiny due to the Biden administration’s tough stance on antitrust issues, which could lead Bunge to dispose of non-core assets down the line.

US pharma firms snap up innovative biotechs 

Europe’s burgeoning biotech sector is also attracting a great deal of attention from US dealmakers. Johnson & Johnson, through its medical research and pharmaceutical arm Janssen, signed a deal with French biotech Nanobiotix in July worth up to US$1.8 billion in success-based payments relating to development, regulatory and sales milestones. The French firm had been struggling financially and was on course to run out of cash by Q3 2023.

Through the deal, the pharma giant throws Nanobiotix a lifeline by licensing its lead product, NBTXR3, a cancer treatment aimed at increasing the effectiveness of radiation therapy.

In another show of faith in Europe’s biotech sector, US healthcare company Ironwood Pharmaceuticals acquired Swiss biotech firm VectivBio for just under US$1.16 billion. The all-cash deal, which was announced in May and agreed at an 80 percent premium compared to VectivBio’s average trading price over the preceding 90 days, highlights the lengths healthcare buyers will go in order to secure prized biotech assets.

Private equity eyes shaky software sector 

With substantial dry powder to deploy, US private equity firms have also been active in the European market, particularly in the software space. In June, Silver Lake increased its stake in Software AG in a deal valued at US$2.6 billion, reportedly beating out Software AG competitor Rocket Software, which is owned by Bain Capital. Now owning a majority stake of more than 63 percent, Silver Lake intends to delist the German software developer.

In a sign of the times, a consortium of investors including US growth equity firm General Atlantic agreed a voluntary cash offer worth more than $1.7 billion with Norwegian edtech innovator Kahoot. General Atlantic had previously acquired a 15 percent stake in the company in September 2022 from SB Northstar, the short-lived internal hedge fund of Japanese investment firm SoftBank.

Described as a “YouTube for education,” Kahoot saw profits soar during the pandemic as students and employees worked from home. Yet the return to schools and offices has hit the profitability of edtech startups as they now find themselves needing to adapt.

Falling valuations in the global tech sector appear to be causing a mismatch between buyer and seller expectations. A case in point is the continued rebuttals by Switzerland-based SoftwareOne of Bain Capital. The PE firm’s latest proposed takeover offer, worth approximately US$3.7 billion, was rejected on the grounds that it undervalues the software and cloud solutions provider.

The mist begins to clear 

The relative strength of the dollar against the euro and sterling will continue to encourage strategic buyers to seize upon transatlantic deal opportunities. But while bidders have spent more on deals year on year, the surge in US-Europe deal activity that analysts predicted at the start of the year has yet to materialize.

There are signs, however, that the momentum that gathered at the start of the year will continue to build, with fiscal and monetary stimulus precipitating interest rate cuts across the globe and financing slowly becoming more available. As the market continues its recovery from last year’s turmoil, transatlantic M&A looks set to continue ramping up as 2023 draws to a close.

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