Merger & Acquisition (M&A) activity has been consistently improving in the US.
On the other hand, in Europe (including the UK), deal-making activity has been extremely sluggish. That said, right now, the outlook seems to be improving for the best as economic confidence ameliorates in the old continent.
As a matter of fact, deal activity is picking up alongside significant deals such as the ones involving the likes of KPN and Invensys. During the first half of this year European deal activity amounted to $637 billion, up by 18% year-over-year. Let’s see three companies that have a reasonable probability of being acquired.
European luxury is still consolidating
After LVMH Moet Hennessy Louis Vuitton acquired Italian cashmere champion Loro Piana for an Enterprise Value (EV) of $2.7 billion during July this year, its clear that consolidation in the luxury business is more alive than ever. I think a very attractive target for any well capitalized luxury group is the high-growth British luxury group Burberry. The company should be one of
the winning luxury brands in growing markets such as China. Meanwhile, the group continues to perform exceedingly well in developed markets such as the US or Europe.
I would specially stress the following points regarding Burberry’s story as an M&A target:
- The company is improving retail execution (rising conversion rates) and maximizing on-line opportunities
- Burberry is accelerating growth through its own initiatives such as festive programs and up-grading stores in Asia, where the brand is extremely strong among younger consumers,
- A strong balance sheet with no debt and strong free cash flow conversion,
- An attractive valuation at 2014 17 times P/E.
I think Burberry remains one of the mos attractive large independent luxury groups in Europe. My bet is that it will not continue in its independent state for much longer.
Telecom Italia SpA (ADR) (NYSE:TI) consolidation must go on
With Brussels pushing for increased consolidation in the troubled European telecom sector, I think there is a long way to go after Telefonica’s recent acquisition of E-Plus, KPN’s German subsidiary. I expect two deals to be completed rather sooner than later.
Telecom deal one
I think Telecom Italia SpA (ADR) (NYSE:TI) will finally be acquired either by Telefonica or an outside investor. Telecom Italia SpA (ADR) (NYSE:TI)’s main shareholder is Telco S.p.A. which is owned by Intesa San Paolo (10.6%), Mediobanca (10.6%), Sintonia (8.4%), the Generali Group (28.1%) and Telefónica (42.3%).
Two facts make me think that a deal might be coming:
First, Mediobanca, Intensa San Paolo and Generali could use the cash proceeds coming from a sale of Telecom Italia SpA (ADR) (NYSE:TI) to strengthen their own businesses. Mediobanca has indicated that it intends to sell its stake. For Telefonica there are two options left: Either sell its entire stake or buy-out its partners. Telefonica is rationalizing its geographical footprint and it does not make sense for the company to own a minority stake in Italy’s main telecom operator.