Political interference hurts merger market

Tim Wallace
Follow Tim
THE GREEN shoots of growth in the merger and acquisition markets could be dampened down as the growing trend for active industrial policies making cross-border deals more complex, two top investment banks warned yesterday.

The market has been sluggish through the financial crisis, but as firms have adapted to economic conditions they are now looking to diversify by making acquisitions in other countries and continents.

But banks warn increasing political activism is adding extra complexity to the process, hitting the new growth sector just as it emerges. For example the UK’s business secretary Vince Cable wants the government to support favoured sectors like pharma and aerospace, while French ministers have increased the hostile rhetoric against international groups like Arcelor Mittal.

“Industrial policies are adding a new layer of complexity to dealmaking, and we are spending more time with policy makers to make sure we can advise clients on the political aspects as well,” said JP Morgan’s Hernan Cristerna.

That adds to the risk of deals failing and means bankers need to spend more resources understanding political tensions.

“We need to be able to advise clients on all elements of complex deals,” he added.

And another major investment bank, which asked not to be named, agreed.

“There are some elements of nationalism from governments in the resource business, in particular,” said a senior M&A banker. “We are paying more attention to the politics around deals, spending more time on it on the very large deals.”

It is understood that “politicians now interfere in most big deals,” hurting the market and hitting firms’ chances of growth.

But a BIS spokesman said: “It is nonsense to suggest that it will add complexity.” He added: “This approach is backed by business and we are pleased that the CBI has acknowledged the work we are doing to secure the future of British industry.”

Cristerna added business executives themselves can do more to help boost the merger market.

“The markets now present an opportunity to invest and firms should be bolder in making strategic purchases,” he argued.

“Investors want a strategic vision from firms, and firms should spell that vision out to shareholders to boost investor confidence. If companies don’t do a good job of explaining their vision, shareholders will be unconvinced and just ask them to return undistributed earnings.”