(Bloomberg) — European banks have attracted the most M&A since 2020 in a flurry of dealmaking that has powered peer-beating performance in their stocks and looks set to spill over into next year.
Banking deals announced in 2024 have topped $41.5 billion, data compiled by Bloomberg show. Overall, financial companies have served up the biggest slice of European M&A among sectors this year, accounting for 17% of the total.
“We would expect 2025 to be another strong year for M&A as management teams have surplus cash burning a hole in their pockets and buybacks are becoming less accretive,” said Nick Brind, a fund manager at Polar Capital Global Financial Trust.
Beaten-down valuations across industries in Europe have attracted buyers, with shares in the region trading at a record discount of 40% to their US peers, based on forward earnings multiples. With buyout firms looking to deploy record amounts of unspent capital, there are signs European M&A may continue at pace in 2025.
Banking stocks are also the region’s best performers of 2024, soaring 32% in total-return terms as dealmaking helps drive their strongest showing since 2021.
Banca Monte Dei Paschi di Siena SpA has led the charge, its share price more than doubling as rivals and investors swoop for stakes during Italy’s push to privatize the bank and forge a new national banking champion. The rally has snapped a 16-year sequence of declines in shares of the world’s oldest lender.
“A fear of being left off the dance floor has led to the starting gun being fired on Italian bank M&A, but it is still early in the proceedings,” said Polar Capital’s Brind.
At the heart of banking’s M&A push is a quest for scale and the pursuit of lower costs, along with efforts to add capabilities and meet more demanding and complex customer requirements. The sector is also preparing for a lower interest rate cycle, with deal synergies a means of maintaining positive earnings momentum.
European bank balance sheets are better equipped for the task, with the sector’s median CET1 ratio, a measure of capital levels, at about 14.9%, according to Bloomberg Intelligence. That’s the highest since BI began tracking the data in 2011.
Unicredit SpA, which has built a stake of about 28% in Commerzbank AG, even as it pursues a takeover of domestic rival Banco BPM SpA, has the highest surplus capital above the regulatory required level, at €8.6 billion ($8.9 billion), according to BI.
Across Europe, Nordic lenders Swedbank AB, SEB AB and Danske Bank A/S boast the highest CET1 ratios.
“Now that balance sheets are stronger and the product factories have been strengthened, European banks are now reconsidering larger deals,” JPMorgan Chase & Co. analyst Kian Abouhossein wrote in a note. “This renewed focus is positive for banks with discounted valuations that could become targets.”
Away from financials, it has been a busy year of dealmaking for telecoms, another of 2024’s best-performing equity sectors.
After a decade of poor performance, a more friendly regulation backdrop has coincided with improving performance for the telecom sector. British regulators allowed Vodafone Group Plc’s merger with CK Hutchison Holdings Ltd.’s Three. Vodafone also agreed to sell its Italian business to Swisscom AG.
Millicom International Cellular SA is the sector’s top performing stock this year after rejecting a $4.4 billion takeover offer from Xavier Niel, who is already its largest shareholder.
With enticingly valued targets on offer, there is every chance European M&A could gain further momentum next year. In addition to companies on the prowl for targets among their peers, global private equity and venture capital funds had a record $2.62 trillion of uncommitted capital as of July, according to figures from S&P Global Market Intelligence and data provider Preqin.
–With assistance from Michael Msika.
©2024 Bloomberg L.P.
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Publish date : 2024-12-24 02:54:00
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