Mergers and acquisitions in Europe are showing a decidedly Yankee touch -- perhaps because most are being engineered under the guidance of American investment banks.
In the largest European merger announced last year, Vodafone AirTouch of Britain enlisted Goldman Sachs Group Inc. to advise it on its $183 billion hostile takeover of Mannesmann AG of Germany, which in turn was counseled by Morgan Stanley Dean Witter & Co. Merrill Lynch & Co. Inc. was part of the team that advised Total Fina SA, the French-Belgian oil company, on its bid for French rival Elf Aquitaine SA, which had Morgan Stanley in its corner.
much ipo work, too
At the same time, firms in Europe are calling on U.S. investment banks at a frenetic pace to structure initial public offerings as that continent races into cyberspace.
"More mergers and IPOs in Europe mean more SUVs in New Rochelle," says James Ellman, senior portfolio manager in Merrill Lynch's asset management division. "U.S. investment banks have experience bringing dot-coms public, and that's giving them an edge. They also have the U.S. investors, who are more comfortable than European investors buying Internet stocks."
Goldman Sachs, for example, worked on 177 deals with a value of $758 billion last year, up from 118 valued at $172 billion the year before, according to Thomson Financial Securities Data Corp. Merrill Lynch advised on 210 combinations with a value of $674 billion last year, up from 152 with a value of $120 billion.
U.S. firms have been looking for new territory ever since the Asian flu hit in 1998, sending Americans scurrying back home. To take advantage of the call for American expertise, firms are bulking up their already formidable presence on the other side of the Atlantic.
In January, Citicorp bought British investment bank Schroder & Co. for $2.2 billion to bolster the European operations of its Salomon Smith Barney unit.
That merger proved to be a boon for other U.S. investment banks as well. Credit Suisse First Boston, Goldman Sachs and J.P. Morgan & Co. Inc. have all cherry-picked Schroder bankers and analysts who fled following the acquisition.
Goldman recently opened an office in Milan and added two analysts in London to bolster its coverage of European media companies.
J.P. Morgan is expanding its junk bond business in the wake of more debt offerings by European technology firms to fund acquisitions or expansion of their telecommunications networks.
Chase Manhattan Corp. tapped Joseph Banks, an investment banker from Goldman, to be one of the new co-chairs of its European media and telecommunications group. It also hired another
Goldman banker, Robert McGuire, to head its energy and power investment banking group in Europe.
This is not just a reshuffling of the deck, according to Chase. The moves are part of the company's increased effort to get a piece of the European merger-advising business.
In competing for it, U.S. investment banks may soon be facing more formidable rivals. Deutsche Bank is in the process of acquiring fellow German bank Dresdner Bank. Combined they would be the largest underwriter of European IPOs, with nearly a quarter of the market. Other intra-European bank combinations are also in the works.
To keep up with American rivals, Warburg Dillon Read, the investment banking arm of Switzerland's UBS, said earlier this year that it would hire enough computer and communications experts to make its team one-third larger than any rival's.
But the Americans are likely to fight hard to maintain their dominant position in the M&A business and growing importance in the IPO market. The volatility of the Dow Jones Industrial Average and the disastrous domestic bond market have American firms anxious to diversify their operations.
M&A up 21%
The lure of Europe is obvious. Last year, there were 21,830 European mergers and acquisitions, up from 17,255 in 1998. And the size of those deals rose even more dramatically. The combinations had a total value of $1.7 trillion in 1999, nearly double 1998's $895 billion.
In merger-advising, U.S. investment banks already have a commanding lead over their European rivals. In over 40% of last year's European combinations, Goldman was consulted for some part of the transaction, giving it the top slot among advisers, followed by Merrill Lynch, Morgan Stanley and J.P. Morgan.
And with Europe a few years behind in cyberspace, Wall Street firms are panting over the Internet IPOs yet to come.
While the IPO market is still dominated by European banks, U.S. investment banks are clawing their way in. Goldman, Merrill and Morgan Stanley -- the three largest U.S. underwriters of European IPOs --combined for 15.5% of all new offerings last year, according to Thomson Financial Securities Data. That was up from a combined market share of about 7% in 1998.
Wit Capital Group Inc., a New York investment bank that does equity offerings over the Internet, is also getting in on the action.
The firm hired Ed Annunziato, former co-head of investment banking in Europe for Merrill Lynch, to lead its newly launched operations in Europe and plans to hire 50 investment professionals.
"We already have indications that there is interest in our services in Europe," says Ronald Readmond, co-chief executive of Wit.
But U.S. investment banks may have to look farther afield than Europe if they hope to truly diversify their risks. While mergers in Europe may be driven by different factors than combinations in the United States, the two financial markets are increasingly tied.
"If the Dow were to drop another 20%, you'd be likely to see an effect in Europe," says Mr. Ellman.
