Goldman, McKinsey See Quest for European Champions Driving M&A

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(Bloomberg) — Europe could emerge as a rare bright spot in global M&A, as geopolitical tensions with the US and trade tariffs propel companies in the continent to consolidate, according to some of the region’s top advisers.

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Market volatility induced by White House rhetoric has dampened optimism among bankers that were expecting a banner 2025, and the volume of global mergers and acquisitions has fallen 8% this year, according to data compiled by Bloomberg. However, there are reasons for less pessimism in Europe, senior executives at Goldman Sachs Group Inc. and consulting firm McKinsey & Co., said on the sidelines of their M&A conference in London last week.

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“This could be the moment for Europe to pick up momentum,” Andre Kelleners, Goldman’s co-head of investment banking in Europe, the Middle East and Africa, said in an interview. “The implications of what is happening geopolitically, with the US retrenching, could have a positive impact for the region.”

Major European countries are stepping up defense and infrastructure spending after President Donald Trump threatened to rip up the transatlantic alliance. German Chancellor-in-waiting Friedrich Merz is looking to get his debt-funded spending package approved, including a €500 billion ($546 billion) fund for infrastructure investment. France and the UK are also putting on a united front by bolstering their defense budgets.

There are also early signs of consolidation heating up in industries such as banking. UniCredit SpA Chief Executive Officer Andrea Orcel unleashed a furor in late 2024 by signaling his interest in German lender Commerzbank AG. Banca Monte dei Paschi di Siena SpA has been pursuing a takeover of its larger Italian rival Mediobanca SpA. Separately, energy services and drilling specialists Saipem SpA and Subsea7 SA agreed to combine to create a company that’s worth $10 billion.

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Still Optimistic

Another reason European firms are pursuing ambitious deals is to remain competitive with their US rivals, who have been enjoying a relatively stronger domestic economy. That spurred Swiss product-testing firm SGS SA to pursue now-aborted merger discussions with French peer Bureau Veritas SA earlier this year.

“We are seeing some large European clients focus on revisiting the need to further strengthen their regional and/or global footprint to enhance their relative competitiveness,” said Carsten Woehrn, co-head of EMEA M&A at Goldman Sachs. “American companies are getting stronger, and European companies need to match that.”

Global M&A volume could rise another 10% to 15% this year, mostly driven by corporate activity, with a significant uptick likely in the later part of the year, Woehrn said. 

Companies are still keen to grow through acquisitions in the longer term, said Michael Birshan, who co-leads McKinsey’s strategy and corporate finance business globally. Around two-thirds of the senior executives polled by the consulting firm expects to do more M&A this year than in 2024, he said. 

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“The mood is still optimistic to dealmaking,” Birshan said. “If growth is your priority, then corporates need to move more aggressively.”

According to McKinsey research, companies that do multiple deals annually are more likely to outperform their competitors in the longer term. These companies are confident in doing the right deal because they care more about creating both revenue and cost synergies, Birshan said.

Some of the factors that were hindering dealmaking — such as rising interest rates — have improved in recent months, according to Mieke Van Oostende, who co-leads McKinsey’s M&A practice globally.

“Unpredictability and the fact that in 48 hours we can go from one extreme to another and vice versa does not help activity,” she said. “Yet, history tells us this pause will hopefully not last for long. Uncertainty in M&A has become the new normal.” 

Activist Campaigns

Corporate breakups are also driving one of the biggest M&A trends in globally, a trend that’s been exacerbated by activist investors. Last year, there were 39 separation announcements globally, a 30% increase over the five-year average, according to a presentation to clients by Goldman Sachs at the London conference. More than half of the separations happened outside the US, with Europe leading the way.

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Activists are deploying billions of dollars into single campaigns, said Avinash Mehrotra, global head of activism and co-head of Americas M&A at Goldman Sachs. An increased proliferation of newly launched funds, which are mostly spinoffs from more established players, is further fueling activity, he added.

Elliott Investment Management in the past year has launched campaigns at major companies such as BP Plc and Honeywell International Inc. The latter agreed to split into separate publicly traded companies following pressure from the activist. BP has pledged to divest its $10 billion Castrol business and shrink investments in renewables but Elliott has said that strategy fell short of its expectations.

“Already this year, activists are becoming more aggressive,” Mehrotra said. “These funds are not going to easily retreat from campaigns.”

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