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In Mizuho | Greenhill’s Beyond The Obvious podcast channel, we uncover the value that others miss.
Our podcast is a source for the latest discussions on topics related to capital markets, dealmaking activity, business leadership and more.
Delve into insights from our investment & corporate banking thought leaders to hear their unique perspectives on current trends and market influences.
Learn how industry icons and influential figures began their journeys, overcame adversity and rose to success.
Discover insights that look deeper.
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Welcome to M&A corner brought to you by Mizuho Greenhill.
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M&A is a core corporate strategy
to scale, diversify and innovate,
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as well as refocus, streamline
and unlock the value of captive assets.
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The past couple of years
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have been challenging for dealmaking due
to heightened uncertainty
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in today's world.
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Getting a transaction
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over the finish line requires
a balance between art and science.
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In this podcast, we sit down with expert
dealmakers to delve into the latest
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trends, dive into issues
that are shaking M&A,
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and offer in-depth analysis on the factors
influencing today's dealmaking.
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Join us as we uncover insights
that look deeper and move
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Beyond The Obvious.
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Hi, I'm Kevin Constantino,
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co-head of corporate finance
and head of M&A Mizuho Greenhill.
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and I am here with David Wiles,
head of Greenhill, Mia.
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Today we're going to discuss
international M&A trends.
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How this differs from the US and
the outlook for the remainder of the year.
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David, welcome.
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- Thank you. It's great
to be back in New York.
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- I thought we could talk a little bit
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about the M&A environment in Europe
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and in the UK in particular
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since this is a rare opportunity
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to have you in our New York offices today.
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Can you touch a little bit on
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what you're seeing in
the UK in particular?
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Obviously, it's been a
remarkable year in terms
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of an election cycle that finally
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has the Tories out of power.
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How does that influence
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how people think about business locally
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and how does it affect the M&A
market, if at all, in the UK?
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- I think there is some optimism
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that we've now got a government
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that has a longer-term time horizon.
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The UK, I guess consistent with
many markets’ needs,
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a real industrial policy
around investment,
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particularly enabling investments
that support business.
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And I think the previous
government was on much more
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of a cycle of managing
by month, by month, by month.
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Whereas the new government’s come in
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with a large majority
potentially for two terms
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and therefore, they can
start thinking about life
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with a 10-year time horizon.
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And I think if you look at
where the UK economy is,
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we're pretty much taxed to the eyeballs.
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We're borrowed to the limit.
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So the only way you can
fund a social plan is really
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through growth and the hope is
that the new Labour government
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will deliver on more of a
growth-oriented investment plan,
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but people are sitting back
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and waiting to see how
that will manifest itself.
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We've got an important
budget coming up in October,
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just before your election in November.
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And the US obviously has an
implication around the UK
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as well, given the codependency of us
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on North America.
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So there's a lot to play for
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around that October, November timeframe.
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And I think going into the summer people backed
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off in terms of making decisions
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and being front-footed.
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And I think if we get the right answer
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through the budget in the UK
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and the markets respond
well to whatever happens
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to the election here in North America,
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then I think people will feel
more optimistic about going
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into the latter part of
this year and into 2025.
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- It's definitely something
different if you're talking
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about two terms for a government instead
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of one head of lettuce.
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So I applaud you for that new stability.
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Can you talk a little bit about
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how large corporations in
the UK think about making
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strategic decisions in particular
inorganic opportunities?
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You look at the FTSE
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and obviously it's probably
the most global index out there
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in terms of what those companies
do and where they operate.
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How did they think about the world relative to
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a smaller company that might
trade on AIM for instance?
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- So it is very different. I think
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if you look at most FTSE companies,
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they probably have less than
10% and in some cases less than 5%
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of their revenues and profits in the UK.
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So the leadership team,
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the boards are impacted
just like we all are
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by what's going on in
our local environment.
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But really what's driving
decision-making is the global economy
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and today when we think
about the global economy,
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it's really the US is
the most important thing.
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So for most of our large
cap corporates and clients,
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it's the US that they're most focused on.
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It's the most dynamic market.
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It's also where more
innovation is taking place
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relative to any other region.
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Almost sort of if you compare and contrast
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to where we've been in the last 10-20 years,
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I think Europe has gone backwards
a little bit in terms of
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of innovation and bringing
new ideas to market.
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The US with the IRA Act
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and other initiatives has really
stolen the march not just on
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technology but increasingly around energy
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and energy transition.
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So North America's a
really important theme
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for most of our larger caps.
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You then flip the switch a little bit,
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obviously if we're dealing
with sort of smaller
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or more regionally focused businesses,
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then obviously the UK economy
does have quite a dramatic
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impact on how they think about lives.
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And we've been through two
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very big shocks in the UK
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in the last sort of five
years, not just Covid,
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which we all experienced globally,
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but also Brexit, which was
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from an economic perspective
an exercise in quite
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significant self-harm
in terms of what it did
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to GDP and GDP growth.
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Now that's starting to unwind
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and the UK is now back
getting to a higher level
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of growth relative to some
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of its more natural
peers on the continent.
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So that's starting to correct,
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but that GDP lag has definitely
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been there for quite some time.
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It's interesting and maybe it's just a function
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of how the equity markets
operate in both the US
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and in the UK and the underlying
health of the economies,
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but there was a bit of a
valuation gap that started
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to develop with those FTSE 100 companies
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where you felt like they
weren't trading at a level they
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would be trading at if they were
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on the New York Stock
Exchange or on the NASDAQ.
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If you look at that as an
opportunity for someone
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to come from overseas
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and invest into one of these UK companies,
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how protectionist is this government going
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to be relative to past governments?
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Obviously we have something
called CFIUS here,
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which is designed to
prevent sort of takeovers
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of sensitive industries.
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Frankly, it's been expanded now
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because it's become a political tool,
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as we're seeing in Nippon Steel.
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But is there that same
dynamic that exists in the UK
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or is it a little bit more open
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for investment from overseas?
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- I think it's a little
bit more open generally.
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It's been our mindset
for a number of years,
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but we do have similar
CFIUS type legislation.
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It's been expanded in recent years.
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Just like here there's
a political dimension.
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It has to be signed off
by the Secretary of State.
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So there is very much
that I think,
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that so far has been very
focused on sensitive industries
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and geopolitical sensitivities.
Particularly China,
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in terms of anything
where this state backing,
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there was a recent example of the sale
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of the Telegraph newspaper
group, which was originally going
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to be sold to a pool of
capital out of the Middle East,
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but it was essentially a
state-backed pool of capital
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and that got caught out in the rules
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and it wouldn't have necessarily happened
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that way a decade ago,
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but there's definitely
a look through
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and if there is a state
involvement in an industry,
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then that becomes much more problematic.
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And anything with a defense
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or with an energy security dimension
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is also difficult, but more broadly—
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- But you can still buy a soccer team?
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- You can still buy a soccer team
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and most global industries,
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particularly in areas like healthcare
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and in most industrial segments
in consumer then
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we are not by inclination
a protectionist society,
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but we will interestingly see
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how the new Labour government
responds and reacts.
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And whereas the Conservative
government previously was,
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was more interventionalist
than many Conservative
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administrations have been in the past.
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The new Labour administration's
probably going
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to have a higher focus on
transactions that impact on labor.
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So if it impacts— steel is a classic, just like
it is here for us there,
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a reasonably large employer, still
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and an industry that's
in somewhat decline.
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And so those industries which have large
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employment, large labor
components are probably going to
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get a higher level of scrutiny
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from this government
than perhaps the last.
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- I just want to ask you
a little bit, David,
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about private equity in the UK
and in Europe more generally.
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Can you talk a little bit about
its function in the market,
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its prevalence in the market.
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Obviously it's really important
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to the US dealmaking environment.
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Can you talk a little
bit about what it means
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in the European context?
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- So very, very similar.
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Europe always has followed the US
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and in that particular area as well.
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So all of the big global private
equity firms are strongly
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present in London and in Europe
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and deal activity is driven
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they're a catalyst for change,
whether that be businesses
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that need to restructure
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and therefore they're a
natural home for a division
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that's not necessarily part of a core
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strategic direction going
forwards, whether it's
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to create consolidation platforms to
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help accelerate
consolidation that needs
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to take place in other industries.
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So it's a very significant part
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of what's driving deal activity.
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I think that just like here in the US,
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businesses are more comfortable
being private for longer
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and there's no real need
necessarily for a company
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to become public in order
to deliver on its strategy
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and to raise capital.
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In fact you might argue that
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a 20% ownership of a listed company
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is less liquid than a 20% ownership
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of a private company these days.
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So that dynamic is definitely at play
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and private equity have the ambition
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to do large transactions.
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So size is not as much of an impediment
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to getting deals done with
private capital in the way
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that it used to be.
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And so it's a very important
part of the market for us.
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- Volumes have been muted in
the US over the course of 2024
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and probably a little bit disguised
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by very large transactions
that make up for
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a lower number of volume
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in terms of number of deals that occur.
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Are you seeing something similar in the UK
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and in Europe generally
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and if so, how do you see
us coming out of that?
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What are the catalysts
for that to improve?
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- Probably even more
so than North America.
00:09:51:15 - 00:09:55:15
So the combination of the political
uncertainty in the UK
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but also we've had quite a
lot of political uncertainty
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in Germany with some issues
around a lurch
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to the right in certain
regional elections.
00:10:04:22 - 00:10:07:14
We saw recently in France with Macron
00:10:07:14 - 00:10:09:13
calling a snap election to try
00:10:09:13 - 00:10:12:18
and rebalance against a lurch to the right
00:10:12:18 - 00:10:14:10
through the European elections.
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So there's quite a lot of geopolitical instability
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in Europe generally,
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which you overlay on top
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and that's held back deal activities.
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So 2023 was a bit of an air pocket
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from an M&A perspective
if you look back over,
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a 10-year time horizon
00:10:29:22 - 00:10:32:15
and while ‘24 is looking
a little bit better,
00:10:32:15 - 00:10:38:11
it's slightly— the statistics are slightly
flattered by some larger transactions.
00:10:38:11 - 00:10:42:05
So actually deal activity
is still relatively muted.
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I think there is a buildup
of ambition to do more
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and that sits with the corporates
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but also sits very strongly
with private equity.
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I think if there's some
stability in North America
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in particular on the back of the election
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in a sense that America's open for business,
00:10:58:06 - 00:11:00:13
then I think there's a very real prospect
00:11:00:13 - 00:11:02:07
that in the latter part of this year,
00:11:02:07 - 00:11:04:22
we start to see some improved volumes
00:11:04:22 - 00:11:07:07
and moving into 2025 potentially
00:11:07:07 - 00:11:08:12
significantly improved volumes.
00:11:08:12 - 00:11:10:18
- Yeah, well I'm rooting
for that as I'm sure you are
00:11:10:18 - 00:11:13:04
because cross-border activity
in particular has been a real
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hallmark of our firm
00:11:14:07 - 00:11:16:19
and would love to see more
activity all across the board.
00:11:16:19 - 00:11:18:20
So with that David, I want to thank you
00:11:18:20 - 00:11:21:07
for taking the time out of
your day to talk with us today
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and I look forward to the next occasion.
00:11:22:20 - 00:11:25:22
- Absolutely. Nice to see you, Kevin.