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US goes bargain-hunting in Europe amid cross-border deal uptick – analysis

Florida-headquarted Carrier Global’s [NYSE:CARR] EUR 12bn acquisition of Viessmann Climate Solutions is the continent’s largest deal of the year so far.

It’s also the latest in a string of transactions which shows North American appetite for European assets remains robust even in a tough year for M&A.

A strong dollar and robust valuations enjoyed by North American corporates means it’s a trend which looks set to continue.

North American M&A investment into Europe has reached EUR 25.9bn so far this year, down 12% on 2022. That’s still impressive when set against the broader M&A backdrop which has seen activity in the region dip 61%.

Inbound M&A now accounts for over 30% of 2Q23 deal value and is on track for its highest quarterly share since the third quarter of 2021, according to Mergermarket data.

Source: Mergermarket

Other big trans-Atlantic deals so far this year include Fremont, California-headquartered Concentrix’s EUR 4.5bn acquisition of Paris-based outsourcing solutions provider Webhelp from Groupe Bruxelles Lambert. This represents the fifth-largest deal in Europe year-to-date.

A strong dollar is one of the reasons which could explain the ongoing appetite from North America for European assets, Sean Rivett, TMT partner at Boston Consulting Group said. There is strong interest in European assets from US funds, Rivett added.

Looking at digital infrastructure assets in particular, Rivett said many investors may naturally prioritise overseas deals in the current environment as valuations become more competitive because of relatively weaker European currencies.

The uptick is not just confined to big-ticket dealmaking as mid-cap situations have similarly seen increased American involvement recently.

Source: ION Analytics, Fidessa (ION Group Companies)

Valuation differentials between US and European companies are another factor which could be driving cross-border deal activity, a European investment banker noted. Sellside advisors are looking to identify and pitch European targets to US corporates when the asset is large enough, the banker said. The resulting pipeline in Europe is flush with assets featuring US interest.

Danish cybersecurity firm Omada is one example. Evercore, which has been appointed by GRO Capital and CVC Capital Partners for the sale, will predominantly market the firm to US-based corporates, according to Mergermarket intelligence.

Warburg Pincus-backed Once For All has also reportedly received interest from several US-based trade players. The sale of the UK-based supply chain risk management software firm could reach an enterprise value of GBP 1bn, based on a 25x EBITDA multiple.

Meanwhile, EQT [STO:EQT] is running a strategic-only process for the sale of Swiss cybersecurity firm Open Systems handled by Bank of America with sources indicating that Palo Alto Networks [NYSE:PANW] is around the asset. The firm could be valued at up to EUR 600m.

The impact of foreign investment on European M&A has been waning in recent years, as increased scrutiny and geopolitical risk has outweighed the benefits of pursuing high-profile cross-border deals.

But that hasn’t stopped North American buyers rooting around for bargains in Europe so far in 2023 and is a theme worth watching as the year progresses.