Surge in M& A Buoys European Economic Sentiment

Spirits remain high amongst European investors following a quarter in which the value of announced acquisitions amongst European companies exceeded those in the U.S. The volume of global mergers and acquisitions surged during the first half of the year led by the announced takeover of ABN AMRO in Europe. Companies around the world recorded over 1.6 trillion of merger deals in the second quarter, surpassing all other quarters according to Thomson Financial. M& A activity has continued to hit the headlines, providing the markets with a fillip during a quarter where credit concerns and the US subprime market have preyed on investors’ minds.

The Dax has risen by 20% year-to-date while the FTSE 100 and CAC 40 have recorded growths of 12% and 20% respectively over the last 52 weeks. “Some investors are concerned that it may be a case of too much too soon and worry about the downside implications of this growth such as inflation and interest rate rises, particularly as the low level of interest rates has been a key factor in fuelling the current M& A boom”, say Roger Guy and Guillaume Rambourg, co-managers of the Gartmore European Selected Opportunities Fund and the Gartmore SICAV Continental European Fund. Low rates have spurred investment and in turn consumption enabling private equity firms to arrange corporate buyouts at very attractive prices. Roger and Guillaume add, “We are cognisant of these factors, however remain bullish in our mid term outlook for European equities given the attractiveness of European companies which are ripe for consolidation and the natural hedges that are in place to protect European companies from issues such as the dollar weakness. We will be keeping an eye on the subprime market but market data indicates that inflationary fears are beginning to dissipate.”