(Bloomberg) — Banking-software specialist Temenos AG topped mergers and acquisitions watchlists in Europe, along with retail firms bruised by sinking consumer confidence, roaring inflation and the risk of recession.
The Swiss company was picked as the region’s top takeover candidate in an informal Bloomberg News survey of 18 traders, fund managers and analysts.
Temenos, which is said to have attracted interest from buyout groups and sovereign wealth funds, has lost more than a third of its value this year, making it all the more attractive for bargain hunters.
The value of dealmaking in Europe fell 27% year on year to $666 billion in the first half, its worst such showing since 2020, according to data compiled by Bloomberg.
While still running high against historical averages for the period, the drop has been more severe than in other major regions.
Read More: Dealmakers Buckle Up as Records Give Way to Ruptures in M&A
Rising interest rates, a selloff in growth assets, a grim economic growth picture and runaway inflation have all undermined confidence, while tightening lending conditions contributed to deals worth tens of billions of dollars falling apart in recent weeks.
“We’ve seen a significant slowdown in M&A so far this year compared to last year with private equity buyers in particular much less active,” said John O’Mara, an event-driven analyst at Avalon Capital Partners.
“Both financial and strategic buyers are likely to remain cautious until equity and credit markets stabilize.”
Still, this year’s selloff has also created opportunities as valuations become more attractive.
Consumer-facing businesses that have been at the wrong end of the stock market rotation proved popular in the poll, including luxury companies Moncler SpA and Burberry Group Plc, UK grocers J Sainsbury Plc and Marks & Spencer Group Plc and online shopping emporium THG Plc.
Representatives for Temenos, Moncler, Burberry, Marks & Spencer, Ubisoft, THG and Sainsbury either declined to comment or did not respond to requests for comment.
They’ve crowded out the telecom carriers that dominated the rankings at the end of the first quarter.
Consumer stocks have been hammered as a surge in the cost of living weighs on sales, while investors have piled into more defensive areas of the market, driving up their share prices.
“Buyers will start to look opportunistically,” said Roger Jones, head of equities at London & Capital.
“There’s a lot more longer-term value opportunities arising in luxury and retail, as opposed to the sectors that haven’t sold off much.”
Consumer Woes
To be sure, bargain hunters making what is perceived as an opportunistic bid on down-and-out businesses have met with little success so far.
Retailer Ted Baker Plc rejected several offers from Sycamore Partners LLC, while Pearson Plc rebuffed Apollo Global Management Inc.’s advances.
“In this volatile market, although suitors may be circling, they will be wanting to snap up targets at a bargain price,” said Susannah Streeter, a senior analyst at Hargreaves Lansdown Plc.
“Boards are likely to be reluctant to accept offers based on current valuations as they believe they don’t truly reflect future opportunities for growth.”
Recent takeover attempts for THG have also failed, after both Nick Candy and Belerion Capital walked away from the beleaguered e-commerce firm.
But the worsening climate for retailers means some may be left with few alternatives.
“The cost-of-living crisis is taking a big bite out of many retailers’ sales and margins,” said Danni Hewson, a financial analyst at AJ Bell Plc.
“If the current crisis lingers, some businesses will become vulnerable and takeover offers might become lifelines, rather than an irritation to be swatted away.”
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