By Sophy Tonder, European M&A correspondent
LONDON, June 27 (Reuters) - A spike in European mergers and acquisitions in the second quarter of 2002 has raised hopes M&A business will pick up faster in Europe than in the U.S., where the WorldCom scandal has shattered already frail confidence. ADVERTISEMENT
"Europe will continue to see more activity than the States and has had a reasonable pace of transactions consistent with the need to restructure and reposition and higher confidence on a relative basis," said Dag Skattum, co-head of European M&A at JP Morgan.
Preliminary figures released by investment banking analysts Dealogic show European targeted deals totalled $283 billion in the first half of 2002, down 20 percent from $353 billion in the 2001 period, but implying an acceleration in the second quarter.
In the United States, takeover activity fell by some 54 percent to just $186.3 billion in the first half.
Investment banks, which have slashed jobs and retrenched during a two-year bear run, are praying for a recovery in a business which is often their most profitable source of income.
Overall M&A activity was down 38 percent in the first half of 2002 from a year ago and transatlantic merger activity is likely to take a further hit from revelations of a $3.9 billion accounting debacle at U.S. communications firm Worldcom (NasdaqNM:WCOM - News) this week, bankers say.
"U.S. acquirers into Europe have almost ground to a halt and the U.S. market is dramatically down in terms of transactions with the concerns over lack of transparency and publicity about high-profile bankruptcies and other major events," Skattum said.
BRIGHTER TIMES FOR EUROPE?
Old economy, well-capitalised European firms will continue to hunt for cheap assets and synergy-laden mergers, while a rash of fire-sale auctions in indebted technology and telecom sectors should help stabilise M&A levels later this year, bankers say.
These "blue sky" forecasts rely on an acceleration in the M&A drive in financial and insurance sectors -- which accounted for over 15 percent of the global M&A volumes in the first half.
"The wave of consolidation will continue domestically in the banking sector. I also expect to see the first signs of pan-European strategies within the banking sector," said Carlo Calabria, co-head of European M&A at Credit Suisse First Boston.
"The euro will have a significant impact on the capital flows. As banks will need to follow their clients, we should start to see the emergence of one big local market across Europe," Calabria added.
But pitches for long-awaited transaltantic mergers are likely to fall on deaf ears.
"I think this (Worldcom) is one more nail in the coffin of a relaxed attitude towards due diligence, or relying on the fact that a company is listed or quoted and therefore there is not that much you can do in due diligence," said Heino Teschmacher, co-head of European M&A at UBS Warburg.
European targets accounted for five of the top 10 global transactions in the first half and the merger of the UK's National Grid Group Plc (London:NGG.L - News) and Lattice, Britain's electricity and gas networks, topped the table at $23 billion.
The second half of the year should also see some distressed sales snapped up by a pack of hungry and cash-rich private equity players, bankers say, who could also pull off some of Europe's largest ever leveraged buy outs (LBOs).
Madison Dearborn Partners, a Chicago-based private equity group, is hoping to complete one of Europe's largest LBO's in the second half -- a 3.7 billion euro deal to buy Jefferson Smurfit (Irish:SMFT.I - News), the world's largest paper packaging maker.
Private equity giant Kolhberg Kravis Roberts & Co and Wendel Investissement (Paris:MWDP.PA - News) also skimmed the LBO record book with a $4.38 billion buy out of French plug and switchmaker Legrand (Paris:LEGP.PA - News) -- Europe's ninth largest deal in the first half.
JP MORGAN TOPS TABLE
The UK Lattice deal helped propel JP Morgan to the top of the European M&A league tables after advising on 82 deals worth $79 billion, lifting its ranking from eight in first half 2001.
The tables also turned for Morgan Stanley and Credit Suisse First Boston with second and third positions in the European tables after ranking in the bottom half of the top 10 advisers at the same time last year.
On a global basis Credit Suisse First Boston took the top advisory spot after advising on four of the first half's biggest global deals including U.S. defense contractor's Northrop Grumman Corp's (NYSE:NOC - News) $7.2 billion purchase of TRW Inc. (NYSE:TRW - News).