Why is Europe Inc. splurging on acquisitions?

It's raining deals in Europe with European companies splurging billions to buy overseas firms, especially those based in the United States, in search of growth.

European companies announced takeovers worth nearly $60 billion (€54 billion) in November — the most the mergers and acquisitions (M&A) market has seen in the month since 2015, according to Bloomberg data. More than half of the amount will be spent on purchasing US companies compared with 37% proposed to be spent to buy western European firms, the data showed.

The shopping spree was led by French luxury conglomerate LVMH — the owner of the Louis Vuitton and Bulgari labels — which agreed to buy iconic US jeweler Tiffany for $16.2 billion. LVMH was followed by Swiss health care company Novartis, which proposed to buy New Jersey-based cholesterol drug maker The Medicines Company for $9.7 billion. Swiss ticket reseller Viagogo agreeing to buy rival StubHub from eBay for $4 billion was another major deal announced last month.  

"The main reason why companies do M&A is really to find more growth and maybe because they lack growth in their core market," Dirk Albersmeier, the head of European M&A at JPMorgan, told DW. "That's why European companies have been active in the US and in our view will continue to be active there. You will find more growth in the US than you would find by buying another company in Europe."

A busy November has ensured that 2019 would not be as terrible a year for mergers and acquisitions in Europe as it appeared in the first six months, when deal volumes fell 33% to a six-year low. Now European deal volumes are down just 15% from the same period last year, Bloomberg data showed.

Attractive destination

The spike in acquisitions comes at a time European companies are reeling from an economic slowdown, global trade disputes and uncertainty surrounding Brexit.

The prevailing gloom makes the US — which is growing at a healthy 2% rate driven by strong consumer spending — an attractive destination for companies hunting for growth.

The existence of a wide array of publicly listed companies also explains why the US is a preferred hunting ground for European firms, which have strong balance sheets but find it hard to find acquisition targets at home where many companies are either privately owned or family controlled. In this respect, the UK is quite similar to the US with its long lineup of listed companies.

"There are more available targets in the US and in the UK. But clearly with Brexit people are much more US-focused now than they are UK-focused," Albersmeier said. "The US itself has better growth dynamics. They have better demographics. Over the next 20 years, demographics will be a big driver of stronger growth in the US than in Europe."