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More European Firms Expect to Sit M&A Out Next Year

(Reuters) – High valuations and a lack of suitable targets will force European companies into a holding pattern on mergers and acquisitions (M&A) in 2012, with nearly half planning to sit out large deals next year, a survey found.

Forty-six percent of the 148 senior executives surveyed by UBS and Boston Consulting Group said they will not, or are very unlikely to, pursue a firm with more than 500 million euros ($665.6 million) in sales, up from 41 percent last year.

Some 45 percent of respondents said the lack of suitable targets was the main barrier. Two in five said high valuations of potential assets was a problem.

A “stable core” of companies, about one in six, plans to make a large acquisition in 2012, the same as last year.

“We need to see VStoxx (the European stocks volatility index) well below 30 percent for a meaningful period to allow for buyer and seller expectation on pricing in M&A to converge,” said Daniel Stillit, a UBS analyst and lead researcher on the report.

Yet some circumstances, including a recent lowering of company debt, indicate M&A might pick up in the next year, Stillit said.

“It’s equivalent to the first year of an M&A wave, but remember it’s quite a flat trajectory. I’d say the survey’s consistent with that, rather than a breakout in volume upwards. It’s the hardest time in five years to forecast M&A volume.”

More executives than last year expect deals in their sector to be cross-continental, a trend that comes with its own risks, Stillit said.

“You are going to be more sensitive to uncertainty and volatility in markets, particularly Europe versus other continents,” he said.

The forecasts come at the end of a mixed year for M&A activity.

The number of deals was healthy in the first half, but volatility, the euro zone debt crisis, and U.S. budget impasse over the summer led to a 23 percent decline in announced deals in the third quarter over the previous three months, according to Thomson Reuters Deals Intelligence.

($1 = 0.7512 euros)

(Reporting By Yeganeh Torbati; Editing by David Hulmes)