Merger fever shows no signs of cooling

“A high volume of mergers and acquisitions is altering the landscape of the financial world and providing a catalyst for our positive outlook towards European equities”, says Roger Guy, Manager of the Gartmore European Investment Trust p.l.c. Fuelled by low interest rates for debt-financed leveraged buyouts and plentiful liquidity, the pace of deal-making shows little sign of abating this year. The first three months of the year were characterised by the busiest and most lucrative first quarter on record, with the volume of global mergers and acquisitions deals reaching over $1,000 billion. And global mergers and acquisitions to date have already surpassed last year’s previous record.

Euro-zone capital expenditure has recovered and is back to levels seen in previous periods of good economic growth. Levels are expected to remain high given high corporate profitability and with companies operating at high utilisation rates. Large cap companies in Europe now offer both compelling valuation and liquidity. Moreover, during periods of volatility, large caps are more resilient to market shocks and more likely to benefit from M& A activity. Companies making the headlines so far this year include a merger between listed banks Unicredito and Capitalia, utility giant Enel’s bid for Spanish power company Endesa and Barclays bid for ABN Amro.