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M&A in a ‘holding pattern’ despite improving management readiness

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Market correction fails to trigger more planned deals, but a stable core of companies remain intent on M&A. Deal-based restructuring likely to remain buoyant.

London, 08 December 2011 – In findings published today, the fourth annual UBS-BCG CEO/Senior executive M&A survey reports that the stock market correction has yet to trigger more deal plans, and concerns about valuation and the unavailability of suitable targets persist. Meanwhile, the internal conditions for M&A have improved, including a focus on growth over further deleveraging, more strategic clarity, and greater management capacity to handle deals, which are improving companies’ readiness. A healthy number of companies expect to restructure via deals in the meantime.

The survey offers unique insights into companies’ M&A and restructuring intentions for 2012 and is believed to be the most extensive of its kind. Published today, the findings draw on the responses of 148 CEO’s and senior managers from publicly listed companies in Europe.

Key findings include the following:

  • A stable core remains, with one in six companies expecting to make a large-scale acquisition in 2012 (unchanged from 2011); large companies are twice as likely to do so.
  • The results reveal a hardening of resolve to stay on the sidelines: 46 percent of companies say they “definitely won’t” or are "very unlikely” to make a large-scale acquisition, versus 41 percent last year.
  • Sixty-four percent see investing in growth via m&a or capital expenditure as the best possible use of their balance sheets, indicating that deleveraging is less of a priority; only 7 percent and 2 percent, respectively, prefer share buybacks or increased dividends.
  • Two other internal barriers to deals have declined: limited management capacity (4 percent compared with 8 percent last year) and the need to finalize strategy (7 percent compared with 13 percent last year).
  • Almost one-third of companies expect acquisitions of European public companies in their sector during 2012.
  • Around one-quarter of companies expect a transformational deal in their sector in 2012, compared with one in five last year.
  • A lack of available targets was cited as the biggest constraint on M&A; this could signal a shortage of “pure play” targets, or of non-pure plays that require time-consuming restructuring.
  • The stock market correction has yet to boost M&A plans; valuations are still viewed as a hindrance.
  • Buyers expect more deals to be cross-continental and oriented toward emerging markets, which raises execution risk and sensitivity to market volatility.
  • M&A may be in a holding pattern, but 30 percent of companies expect to undertake deal-based restructuring over the next 12 months,

One in six companies (16 percent) expects to make at least one acquisition of a business with sales of more than €500 million in 2012, while larger companies are almost twice as likely to do a deal on this scale. The research identified two main objectives driving European M&A deals in the coming year: to improve margins in slow-growing markets at home through consolidation and to expand in fast-growing markets in developing nations such as China, India and Brazil. Around one in four executives expect to make “transformational” deals in 2012 and 83 percent cited consolidation as the prime motive—a significant rise from last year’s M&A survey. At the same time, the number of respondents citing expansion into emerging markets as a top M&A priority jumped from 16 percent to 28 percent this year.

Companies show little inclination to return surplus capital via buybacks or dividend hikes, despite balance sheets being as strong as they have been in eight years, instead seeing M&A as an opportunity for step-change growth or deal-based restructuring.

The majority of surveyed companies do not see the European stock markets as offering acquisition bargains, with 39 percent citing high valuations as a barrier to M&A.

However, companies’ plans reflect a degree of continued caution. The survey reveals that targets with a good strategic fit are increasingly difficult to find. The top M&A barrier cited this year by 45 percent of executives in many industries was a paucity of problem-free targets that make neat strategic fits, some having already been acquired or nested in larger businesses.

Almost half of respondents (48 percent) believe that M&A in their sector involving European companies is most likely to be cross-continental (compared with 32 percent last year), indicating an increase in the perceived execution risk of deals and a heightened sensitivity to market volatility.

“M&A activity next year will largely hinge on macroeconomic factors,” said Alexander Roos, a BCG partner and coauthor of the report. “If worries linger, 2012 could be very difficult for M&A If they dissolve, it could be a strong year.”

“Industries haven’t stopped evolving and the growth imperative hasn’t dissolved. Beyond that stable core of one in six, there’s a swath of companies needing to transact but not yet willing to take on plain-vanilla or more complex deals without a bigger price discount. This will be the case until market risk premiums and volatility subside. In the meantime, there is a healthy pipeline of restructurings,” said Daniel Stillit, head of special situations research at UBS.

“The strategic challenges facing many industries are so large that they cannot be met only through organic means,” said Roos, who leads BCG’s global corporate development practice. “M&A is increasingly needed if a company is to improve its competitive position fast enough. But good execution is also increasingly vital.”

About the survey
The fourth annual UBS-BCG CEO/senior executive survey is designed to provide insight into corporates’ views on M&A, valuations, financing and deal-based restructuring.

In total 148 senior executives from 701 European listed corporates in 29 industries responded, a 21 percent response rate. This is consistent with the 23 percent and 179 responses (762 surveyed) last year. The survey was conducted on a non-attributable basis by GFK financial and responses were segmented across two dimensions.

Size by market capitalization: respondents comprised 67 companies below €2 billion, 40 companies above €2 billion but below €5 billion, 26 companies above €5 billion but below €15 billion, and 15 companies above €15 billion.

Sectors: corporates across 29 sectors responded. The response rate by sector ranged from 0 percent to 36 percent, with all but four sectors with no responses.

Companies were divided among the following sectors:

Aerospace and defense









Telecom equipment






Asset managers


Oil and gas





Pharma and biotech





Professional publishing



Broadcasting chemicals


Pulp and paper



Construction and building materials


Rail and transport



Consumer goods


Real estate








Food producers


Semi conductors





Software and it










Support services



Notes to editors

About UBS
UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. We combine our wealth management, investment banking and asset management businesses with our Swiss operations to deliver superior financial solutions.
UBS is present in all major financial centres worldwide. It has offices in over 50 countries, with about 37 percent of its employees working in the Americas, 37 percent in Switzerland, 16 percent in the rest of Europe, and 10 percent in asia pacific. UBS employs about 65,000 people around the world. Its shares are listed on the six Swiss exchange and the New York stock exchange (NYSE).

About the Boston consulting group
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