Dying Deals Add to European M&A Woes Amid Slump in Activity

(Bloomberg) -- A spate of collapsed deals is dealing another blow to a European M&A landscape that’s already on course for one of its worst years since the crisis.

Two potential mega deals were killed Thursday morning: U.K. grocer J Sainsbury Plc and Walmart Inc.’s Asda dropped a 7.3 billion-pound ($9.4 billion) merger plan after antitrust authorities blocked the deal, and German lenders Deutsche Bank AG and Commerzbank AG cited execution risks when they ended talks on a historic tie-up.

Walmart is exploring an IPO for Asda instead, people familiar with the matter said.

Advisers on the Sainsbury-Asda deal likely lost out on a combined $60 million to $70 million in fees, according to data from investment banking analytics firm Freeman Consulting Services. Any payouts for Deutsche Bank-Commerzbank would’ve been minimal since it was a merger of last chance, the firm said.

Worries about Brexit and broader concerns about the continent’s economy have led to a sharp slowdown in European M&A activity. The number of deals for European companies is down more than 50 percent this year to $167.1 billion, according to data compiled by Bloomberg. The first quarter was the slowest for M&A since 2012, the data shows.

Bankers have already been complaining about increased regulatory interference hampering transactions. Earlier this year, a planned combination of French trainmaker Alstom SA with the rail arm of Germany’s Siemens AG was blocked by the European Commission. Chinese bidders have also been scared off from deals on the continent because of increased scrutiny. Chinese offers for European assets are down more than 50 percent from last year, the data show.

“M&A is confidence driven and when CEOs look at their peers and see them stumble on some of the big transactions, it gives them pause on pushing the button,” said Alison Harding-Jones, head of M&A for Europe, the Middle East and Africa at Citigroup Inc. “We are also seeing less activity from Asian acquirers as they see funds drying up at home and some markets less willing to embrace them.”

China Three Gorges Corp.’s 9.1 billion-euro ($10.2 billion) bid for EDP-Energias de Portugal SA ended on Wednesday after the Portuguese utility’s shareholders decided against removing a cap on the firm’s voting rights, a condition of the offer.

The collapse of the German banking deal will also threaten prospects for more European bank consolidation. While top banking executives have openly called for more M&A in the sector, the failed deal will raise further questions on the the viability of combining large European banks struggling to gain scale and influence similar to their U.S. counterparts.

For more on hurdles to the European M&A wave, click here.

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