Della Vedova, who manages the firm’s European High Yield Bond Fund, noted that while the situation has some similarity to the high M&A levels seen before the 2008 crisis, it is not necessarily directly comparable.
“The steep rise in M&A activity among European corporates over the past 18 months is attracting a lot of attention – and dividing opinion,” he said. “For some, it is a worrying trend, rekindling memories of the leverage-oriented environment that preceded the 2008 financial crisis.”
The other way to look at this according to Della Vedova is that the deal frenzy reflects corporate optimism and growing confidence in Europe’s economic prospects, both of which bode well.
‘Echoes of 2008 crisis are erroneous’ in Della Vedova’s view, principally because companies’ finances across Europe are generally stronger than in 2008. Companies with the weakest finances were forced out of business while others were shocked into action to strengthen balance sheets.
Della Vedova had a note of caution however, saying that a ‘trend toward re-leveraging bears monitoring’ and noting larger volume of M&A increases the potential for ‘event risk.’
“Heightened M&A activity offers bond investors the potential for strong returns but also increases the likelihood of credit issuers experiencing fundamental change and producing unanticipated outcomes for investors,” he said. “The globalised nature of financial markets adds another layer of complexity to the mix, with M&A deals involving European companies potentially arising from anywhere in the world.”
