We first state the composition criteria of the list of deals that we have examined and then present our main findings.
Composition of the M&A deals list
Data on M&A operations were collected from Bureau-van-Dijk’s ‘Zephyr’ data- base, which cover deals involving European companies going back to 1997.
Each record in the database includes information about the target and the acquiring companies, such as the country of residence, the sector (or sectors) of business activity, whether the involved companies are listed and on what exchanges, the deal value, several relevant dates (such as the announcement date and the date when the deal is completed) and the stake acquired by the bidder – if the conditions and terms of the deal were disclosed.
We selected deals where acquirers and targets are in one of the following Zephyr database categories: bank, building society, bank holding company, life and non-life insurance company. The selection period is from 1997 to 2007; any deals where the acquirer is not resident in the EMU area were excluded. Also, since Zephyr records lack details for deals with more than one party on either side, these were removed from the sample. The resulting list totals 1,526 M&A operations.
We subdivided the companies on the list into three main sectors: banks, insurers and financial conglomerates. The Zephyr classification was used as a benchmark for allocating companies to either of the first two sectors. To identify entities that can be classified as ‘financial conglomerates’, we cross- referred to the lists compiled by the relevant authorities of each member country under Article 3 of European Commission Directive 2002/87; since the lists are updated almost every year, they provide up-to-date information.
Unfortunately, the first lists of financial conglomerates appeared in late July 2005 and refer to year 2004; therefore, for the period 1997–2003, we define as ‘financial conglomerates’ any entities whose principal business sector is
‘Banks and insurance companies’ in the Zephyr database.
belong to different sectors as defined above (for example, a bank acquiring an insurance company).
M&A activity from 1997 to 2007
M&As have been quite frequent in the European financial sector since the end of the 1990s because of the reshaping of the market environment driven by the removal of intra-EU barriers to competition and by the rising demand for financial services from former Communist countries in Eastern Europe and the Balkans. The resulting integration process has been supported by deregulation policies in EU member countries, both in domestic arenas and internationally.
Table 4.1 provides a synthesis of the major features of M&A activity origi- nated by EMU banks, insurers and financial conglomerates as they emerge from our data set.
While half of the deals over the whole period are focused on the same country and sector as the acquirer, cross-border M&As have a 45 per cent share and their number increases steadily over time. Most cross-border operations do not diversify by sector. Cross-sector M&As account for only 15 per cent of the total; while their share is quite stable at the domestic level, for cross-border operations it increases almost threefold over the period.
An examination of M&As by sector of both acquirer and target reveals that most activity involves banks (Table 4.2); insurers come second and financial Table 4.1 M&A deals originated in the EMU area: annual average by type and period
Type of deal Period
1997–2000 2001–4 2005–7 1997–2007
Domestic / In-sector 67 75 56 67
(%) 49.6 55.6 41.5 49.6
Domestic / Cross-sector 10 11 10 10
(%) 7.4 8.1 7.4 7.4
Cross-border / In-sector 51 44 52 49
(%) 37.8 32.6 38.5 36.3
Cross-border / Cross-sector
8 14 19 13
(%) 5.9 10.4 14.1 9.6
Total 135 144 137 139
(%) 100.0 100.0 100.0 100.0
Source: Own processing of Zephyr Database.
conglomerates are involved in the minority of operations. However, while banks and insurers are acquirers and targets with more or less the same frequency, a financial conglomerate is seldom a target.
In both banking and insurance, over 90 per cent of M&As aim to consoli- date the presence of the acquirer in its own sector. Financial conglomerates have a 10 per cent share of total acquisition activity, directed mainly at banks (70 per cent) and insurers (28 per cent); therefore, they are the only sector that is a net acquirer.
In Table 4.3 deals are classified by the geographical area of targets and detailed by the sector of acquirers. In general, most deals are inside the EMU area; more than 85 per cent of all targets are domiciled in Europe. Insurance companies are the least active acquirers outside the EMU – with the minor exceptions of the Asia-Pacific basin and North America. M&As initiated by banks are relatively frequent in Eastern Europe and Latin America; the former are mainly concluded by Austria, Belgium, Greece and Italy, while the latter involved Spanish and French acquirers. As expected, financial con- glomerates are the most active players outside the EMU area, concluding a large share of operations in the rest of Europe and North America.
Further examinations reveal that cross-border transactions are mostly initiated from smaller EMU countries, particularly Austria, Belgium, Ireland and the Netherlands; this may be explained by the maturity and the high concentration of banking and insurance markets in these countries, which may drive intermediaries to look for new business opportunities abroad – as
Banks Insurance companies
Financial conglomerates
Banks 901 70 1 972
(%) 92.7 7.2 0.1 100.0
Insurance companies
36 366
–
402
(%) 9.0 91.0 100.0
Financial conglomerates
106 43 3 152
(%) 69.7 28.3 2.0 100.0
Total 1,043 479 4 1,526
(%) 68.3 31.4 0.3 100.0
Note: A dash indicates the absence of any cases.
Source: Own processing of Zephyr Database.
suggested by Campa and Hernando (2006). Also, while cross-border M&As are mostly directed towards non-EMU countries, there is some variability of this pattern depending on the country of origin: Luxembourg, Belgium, Portugal and France are more likely operate within the EMU area, while Greece, Finland, Austria and Ireland often make acquisitions outside the region.
Since M&As within the EMU area are our main focus, we provide some detail about them. The pattern of M&As over the period 1997–2007 is
Banks Insurance companies
Financial conglomerates
EMU country 677 294 73 1,044
(%) 69.7 73.1 48.0 68.4
Other EU country 9 8 6 23
(%) 0.9 2.0 3.9 1.5
Eastern Europe 166 55 46 267
(%) 17.1 13.7 30.3 17.5
Other European
country 18 9 4 31
(%) 1.9 2.2 2.6 2.0
North America 21 13.7 13 47
(%) 2.2 3.2 8.6 3.1
Latin America 53 8 5 66
(%) 5.5 2.0 3.3 4.3
Asia 15 9 3 27
(%) 1.5 2.2 2.0 1.8
Australia and
New Zealand 2 4 – 6
(%) 0.2 1.0 0.4
Africa 11 2 2 15
(%) 1.1 0.5 1.3 1.0
Total 972 402 152 1,526
(%) 100.0 100.0 100.0 100.0
Notes: A dash indicates the absence of any cases.
Source: Own processing of Zephyr Database.
Table 4.4 M&A deals involving only EMU companies by domicile: 1997–2007
Acquirer country Target country Total Domestic
M&A share
AT B DE ES FI FR GR EI It L NL PT
Austria (AT) 18 – 4 – – 1 – – 2 – – – 25 72.0%
Belgium (B) – 49 1 1 – 7 – 1 1 11 11 – 82 59.8%
Germany (DE) 4 1 137 5 2 6 – 2 7 1 3 1 169 81.1%
Spain (ES) – – 1 73 – 2 – – 4 – – 8 88 83.0%
Finland (FI) – – – – 31 – – – – – – – 31 100.0%
France (FR) – 4 12 8 – 146 2 2 12 – 4 3 193 75.6%
Greece (GR) – – – – – – 46 – – – – – 46 100.0%
Ireland (EI) – – 2 – – – – 8 – – – – 10 80.0%
Italy (It) 3 – 3 4 – 1 – 2 251 1 – – 265 94.7%
Luxembourg (L) – 2 3 – 9 – – 2 23 2 1 42 54.8%
Netherlands (NL) – 7 7 1 – – 3 1 3 – 37 1 60 61.7%
Portugal (PT) – – – 4 – – 1 – – – – 28 33 84.8%
Total 25 63 167 99 33 172 52 16 282 36 57 42 1044 81.1%
Note: A dash means absence of cases.
Source: Own processing of Zephyr Database.
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operations; for instance, Belgian intermediaries mainly acquire companies in France, Luxembourg and the Netherlands; the reverse is also observed, since these countries are the host for most bidders for Belgian companies.
The explanations commonly offered for this phenomenon include short intra-firm distance and homogeneity of domicile countries with respect to language, culture, business and saving habits, as well as the presence of historical links.4
Some countries can be labelled as ‘net acquirers’, because their acquisitions of foreign companies outweigh those of domestic ones by foreign entities;
other countries are ‘net targets’, since the opposite is observed. Belgium, Germany, France, Luxemburg and the Netherlands are net acquirers, while Spain, Finland, Greece, Ireland, Italy and Portugal are net targets.
Italy is home to the largest amount of transaction activity, accounting for about 25 per cent of the total number of deals, followed by France (18.5 per cent) and Germany (16.2 per cent). The general geographical and industrial pattern of M&As in the EMU is consistent with the picture that emerges from Table 4.1. Nevertheless, there are some important differences by country.
Belgium and the Netherlands have a large share of M&A activity across their borders oriented to cross-industry expansion, while Finland, Greece, Italy and Portugal are the four countries where domestic, in-sector operations are most frequent.
According to the evidence delivered by our examination, most M&A activity initiated by EMU financial intermediaries over the 1997–2007 period aimed at concentrating and consolidating rather than at diversifying; more than 85 per cent of the deals in our list are M&As concerning the main business activity of the acquirer. A 40 per cent share of in-sector M&As were directed at foreign companies. Overall, cross-border M&As increased their share from 43 to 53 per cent. Geographical diversification within the EMU area was, on average, 15 per cent of all recorded activity, sought mostly by banks and insurers from large countries, notably Germany and France, and by Benelux companies. A similar share of M&As was directed toward Eastern Europe.
Financial conglomerates expanded internationally at the highest relative rate.
Companies based in Mediterranean countries, Portugal, Ireland and Finland were exclusively domestic acquirers, with only a few exceptions.