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Guest Editorial: Dealflow Continues to Flourish in an Uncertain Market

Legal Markets

When preparing for my welcome speech the night before our annual client party at the end of September, I was reflecting on the current market climate and the past year. Our Prague office has had an excellent year both in terms of financial results and growth of the team. Just before summer we made up two new partners and we have recently added five new advocates to our team.

It felt only natural to put our own positive message into a wider context. The Czech statistical office had just announced an expected GDP growth of more than 4% and a record low unemployment figure. The country is actually among the frontrunners in the EU for these macro-economic indicators.

It did not feel right, however, to just reflect on these positive developments – after all, we do not live in a bubble. The refugee crisis is reaching new heights every day, the position in Ukraine seems unchanged and we are waiting to see how the downward spiral on the Chinese stock exchange will affect us. Just reading the daily headlines is enough to sink you into a mild depression. 

But did I really want to kill a celebration with our clients by speculating on all that? To stay on the safe side, I decided for a brief speech summing up developments in our office and thanking our clients for trusting us with their business. 

The M&A Outlook – a report CMS published at the end of September – echoes a similar dualistic attitude to European recovery in the M&A sector. On the one hand, confidence is sparked by the IMF forecast that euro-area GDP growth in 2015 will be above 1% for the first time since the post-Lehman financial downturn. However, the 230 CEOs, finance directors, bankers, M&A heads, private equity investors and sector specialists that were interviewed for the report believe that political uncertainty and regulatory issues remain serious concerns for European businesses, making a return to health for the Eurozone circumspect.

Despite the cautious outlook, European M&A deal value is actually at its highest level since 2007. Deal value has risen by 17% for the first half of 2015; however, deal volume dropped by 14% with 2,800 deals compared to 3,300 for the same period last year. For a number of reasons – favorable Euro exchange rate and availability of healthy assets, among them – the  European M&A market remains attractive to foreign acquirers from the US and Asia. 

A weak euro is still considered one of the biggest threats to European businesses. However, there may still be a silver lining. Many top executives remark on the positive fallout of eurozone volatility. While a weak euro will make imports and outbound M&A transactions comparatively more expensive, it may also make euro-area exports and inbound M&A deals more attractive to international buyers.

Examining the responses to our research, a clear majority (73%) expect that M&A levels will increase or increase greatly over the next 12 months. This shows a similar level of optimism to 2014, when 76% of respondents expected an increase in M&A, and a marked increase from 2013, when only 48% foresaw an uptick in dealmaking. While European M&A has had a muted start to the year, M&A is on corporates’ agendas, and pipelines are likely to be fuller in the second half of the year.

I am optimistic by nature and believe Europe will be able to deal with problems whether they relate to Russia, the current inflow of refugees, or the euro. Europe – CEE included – still remains attractive for investors from outside the region. We can take hope from the fact that our M&A Outlook shows that executives are bullish about M&A prospects while at the same time being cautious about the economic climate.

By Helen Rodwell, Managing Partner & CEE Head of Corporate, CMS Prague.

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.