Europe's Calm Spurring Fastest-Growing Merger Financing Market
U.S. Investment-Grade Loan Issuance Drops to Lowest Since 2013
(Bloomberg) -- With political risk dissipating in Europe, the continent’s biggest companies are in acquisitive mood and are borrowing more to fund deals while the U.S. market for merger financing languishes.
Loans to high-grade companies for acquisitions in Europe this year are more than double the same period in 2016, though the number of transactions is down by more than one-fifth as larger companies dominate, according to data compiled by Bloomberg. In contrast, U.S. loans for mergers have declined 19 percent.
The divergence in capital raising reflects different political outlooks, according to Simon Derrick, London-based director for investment-grade loans in Europe, the Middle East and Africa at Deutsche Bank AG, the region’s top bookrunner during the first-half. Fears that national elections in France, Germany and Italy would put populist governments in power have eased which is encouraging more deals.
"Stability tends to breed M&A," he said. “Increased political stability should prompt more corporate activity."
European companies raised 93.8 billion euros of acquisition-related loans in the first six months of this year, according to Bloomberg data. With around 20 billion euros more in the pipeline, volume is poised to catch up with 2016’s full-year figure of 127 billion euros.
"A continued flow of opportunistic financing, which we are observing at present and which we think is likely to continue over the coming quarters, will keep banks busy," says Reinhard Haas, Commerzbank AG’s Frankfurt-based head of debt capital markets loans.
Among imminent transactions due in the coming weeks is a loan to back the Arnault family’s bid to buy 26 percent of Christian Dior for about 12.1 billion euros. Prominent deals seen during the first half included British American Tobacco Plc’s $25 billion loan backing its Reynolds American acquisition.
U.S. loan bankers, meanwhile, are pinning hopes that a $13.7 billion bridge facility backing Amazon.com Inc.’s purchase of Whole Foods Market Inc. could breathe life into the waning loan market.
"A large corporate issue could have a spillover effect, prompting other companies to follow suit," says Robert Danziger, Deutsche’s head of investment-grade loans in the U.S.
The appetite for big acquisitions may be held in check by ongoing political wrangling over financial regulation and tax policy, according to Peter Hall, Bank of America Merrill Lynch’s head of investment grade loans.
"Companies may be waiting to see what direction the reforms could take," he said.
To contact the reporter on this story: Jacqueline Poh in London at jpoh39@bloomberg.net.
To contact the editors responsible for this story: Hannah Benjamin at hbenjamin1@bloomberg.net, Chris Vellacott