Nichols sees uptick in European M&A

Mergers and acquisitions activity in Europe is starting to pick up after “years of almost nothing”, according to F&C’s Mark Nichols.

The manager’s top-performing F&C European Growth & Income fund has benefited from Vodafone’s purchase of Kabel Deutschland for €7.7bn (£6.5bn)

in June, having held a 3 per cent position in the German cable TV company.

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“Businesses were frightened of [M&A] when the funding environment was weak,” Mr Nichols said.

“Now there is much less risk attached to it and investors are more keen to see these deals. Funding costs are as low as they have ever been. Attractively priced assets with funding costs this attractive are not something I’ve seen in my career.”

Mr Nichols has used some of the cash from the acquisition to buy a stake in Ziggo, the biggest cable TV operator in the Netherlands, which he said could also be a target for acquisition.

“We saw lots of the same positives in Ziggo as we did in Kabel Deutschland,” the manager said. “If a buyer can give us an upside [a bid at a premium to its share price], that can protect the downside.”

Recent research by Mergermarket showed the combined value of deals completed in the first half of 2013 in Europe was $270.5bn (£172.56bn), significantly lower than in the same periods in 2012 and 2011.

However, a recent M&A report by Allen & Overy on activity in the first half of 2013 noted that, while the number of deals was still lower than expected, “many more deals [are] being prepared, creating a pipeline of potential transactions that bodes well for a much busier second half of the year”.

Mr Nichols said: “We’ve had years of almost no M&A so we are coming back from a very low base. Data suggests M&A is picking up – all the ingredients are there. At the moment it is a trickle not a flood.

“Future cashflow is predicted to be stronger, and strong balance sheets are only getting stronger. The obvious things for companies to do are invest in their own businesses, give to investors as dividends, engage in capital expenditure or get involved in M&A.”

Elsewhere in the fund Mr Nichols has taken profits on holdings in Swedish bank Handelsbanken and Irish dairy manufacturer Glanbia after both stocks rose to more than 5 per cent of the fund. Both companies remain in the manager’s top-10 holdings.

The F&C European Growth & Income fund posted top-quartile returns in the IMA Europe ex UK sector in one, three- and five-year periods to September 3, according to FE Analytics. The fund has also comfortably outperformed its FTSE All-World Developed Europe ex UK index benchmark.