Social turmoil and regulatory forces have slowed growth in
European M&A. In this environment, corporate lawyers
recommend two contractual mechanisms to remove uncertainty in
Approximately 38% of global deal value in the first three
quarters of 2012 involved a European target. But lack of
stability in the region has capped growth in Europe's M&A
Speaking at an October 3 conference in the New York offices of
Dechert, the firm's London-based partner Jonathan Angell said
the political response to the eurozone crisis had damaged
"The EU authorities have applied a short-term political
band-aid which hasnt resolved the underlying issues, so
the fears keep resurfacing, as tensions shift from Greece to
Spain and elsewhere," he said.
London partner Douglas Getter said the many variations of law
at the EU, national, state and provincial level further
deterred potential investors.
Angell also noted the importance of the revised UK Takeover
Codes stipulation that buyers must proceed with an offer
no more than 28 days after publicly announcing it. This is
off-putting to US corporate executives considering an
acquisition in a volatile country where target valuations may
change by the second.
The EUs Business Transfers Directive, which safeguards
the employment contracts of a company changing hands, also
raises issues that buyers more accustomed to US M&A are
ill-equipped to handle, Angell said.
Both lawyers recommended using a locked box to fix a purchase
price at an early stage, shortly after due diligence on the
target had been performed. This can benefit both buyers and
sellers. But Angell said sellers have grown particularly fond
In the last 24 months, the locked box has been used in
almost half of the M&A deals, and more often than
completion accounts," he said. "It gives the seller greater
certainty over the price they are going to get."
There is also growing demand for fixed exchange rates down the
line and here, the dollar rules.
Federico Pappalardo, a partner in the firms Munich office
said where a price is determined in euros, sellers are
concerned about events such as Germany leaving the eurozone.
Since early this year, we have seen sellers requiring a
purchase price to be determined in dollars, at the exchange
rate applicable at the time of signing if an euro event
occurs, he said.
Getter estimated that there are 16 or 17 funds looking to raise
over $10 billion for European distressed debt acquisitions.
Germany stands out as an economic powerhouse and driving force
behind M&A, Pappalardo said.
If you look at the landscape, Germany has remained
stable," he said. "Its economy is still growing and accounts
for approximately 35% of Europes GDP."
"The first half of 2012 has seen an increase compared to 2011,
which is amazing if you look at other markets," he said.
There have been some high-profile distressed deals, in the
traditional industrial sector. And US investors regard Germany
as offering targets with solid and healthy balance sheets as
well as cash flows in a politically and socially stable
environment, Pappalardo said.
'Greek PE deal overcomes eurozone fears'