U.S. and Asian companies seeking acquisitions in Europe mayaccelerate dealmaking next year after a slowdown in the secondhalf, beckoned by a slumping euro and share prices depressed by thesovereign debt crisis.

Led by Johnson & Johnson's $21.3 billion bid forSwitzerland's Synthes Inc., announced takeovers in Europe byoverseas companies rose by about 58 percent to $252 billion thisyear, data compiled by Bloomberg show. While acquisitions havedeclined since July, companies including General Electric Co.,China's HNA Group Co., and Japan's Fast Retailing Co. have signaledan appetite for further takeovers in the region.

“There are well-positioned acquirers globally looking forbargains,” even if economic pressure has slowed recent Europeandealmaking, said Gregg Lemkau, head of mergers and acquisitions forEurope, the Middle East, Africa and Asia-Pacific at Goldman SachsGroup Inc. “One of the drivers in Europe has been historically lowvaluations and a relatively soft currency.”

Europe may offer the best bargains in more than 15 years. TheMSCI Europe Index, a measure of 450 stocks, trades for 10.4 timesreported earnings, showing equities in the region are cheaper thanthey've been 98 percent of the time since 1995, according toBloomberg data.

The euro, meanwhile, has fallen by about 13 percent against thedollar since the sovereign debt crisis began two years ago, makingconditions even more favorable for U.S. buyers. Potential Japaneseacquirers have the advantage of a yen that has gained about 10percent in the past six months against a benchmark basket ofcurrencies including the euro.

While few companies are clamoring for access to the Europeanmarket itself, “in many cases, what overseas buyers are reallyacquiring in Europe is technology, or access to emerging markets,”said Giuseppe Monarchi, head of European M&A at Credit SuisseGroup AG.

J&J's planned purchase of Synthes will give the U.S.health-care products maker devices used to treat bone fractures andtrauma, while Hewlett-Packard Co.'s $10.3 billion takeover of theU.K.'s Autonomy Corp. in November handed it data-sifting enterprisesearch technology helpful to cloud computing. In buyingLuxembourg-based Skype Technologies SA for $8.5 billion in October,Microsoft Corp. absorbed the world's biggest provider of Internettelephone service.

Emerging Markets

European companies have also tended to be more aggressive thantheir U.S. counterparts in expanding in markets like Africa and theMiddle East, spending about $90 billion on deals in those regionssince 2000, Bloomberg data show. That compares with about $50billion of such takeovers by U.S. companies.

So far, access to those markets and technologies mean manyEuropean targets are still worth having. However, a protractedslowdown and a failure by European policy makers to resolve theirfiscal challenges may damp the outlook for dealmaking.

A degree of reluctance to do deals will “likely persist untilthere's some resolution to the debt crisis,” said Goldman Sachs'sLemkau. “The interest is still there, but the volatility anduncertainty in the markets makes the likelihood of most acquirerstaking action low.”

Moody's Investors Service said Dec. 12 it will review theratings of all European Union countries after a summit last week inBrussels failed to produce “decisive policy measures” to end theregion's debt crisis. Standard & Poor's placed the ratings of15 euro nations on review for possible downgrade on Dec. 5.

Dealmaking in Europe declined in the second half to the slowestpace since 2008, with foreign buyers announcing $86 billion ofacquisitions, 48 percent less than in the first half, Bloombergdata show.

There were more than $8 billion in takeovers announced globallytoday, including New York-based Apollo Global Management LLC'sagreement to acquire Belgian chemical producer Taminco GroupHoldings from CVC Capital Partners Ltd. for about 1.1 billion euros($1.4 billion), the data show.

Still, many companies have recently expressed an interest inEurope. General Electric, based in Fairfield, Connecticut, said inNovember it's targeting European deals as it seeks to compete withGerman rival Siemens AG. Fast Retailing, owner of the Uniqlofashion brand, is seeking European targets to offset stagnant salesat home, Chief Executive Officer Tadashi Yanai said last month.HNA, meanwhile, has said it has a $6 billion war chest foracquisitions in Europe and the U.S.

“The U.S. went into recession earlier than Europe and came outof it faster,” said David Silver, head of European investmentbanking at Milwaukee-based Robert W. Baird, which typically focuseson deals valued at as much as $1 billion. “American companies arearmed with stronger balance sheets and want to deploy capital.”

Cash Stashes

A study of 258 U.S. corporations by JPMorgan Chase & Co.,published in September, found they held $368 billion abroad,roughly half of their total cash, cash equivalents or investments.Microsoft and Hewlett-Packard both cited a need to find a healthyreturn on their cash held overseas when announcing their takeoversof Skype and Autonomy, respectively, earlier this year.

U.S. companies may face competition from Asian acquirers, whohave announced about $72 billion of takeovers in Europe so far thisyear, up 42 percent from the same period a year ago, according toBloomberg data. Japanese acquirers led dealmaking, more thandoubling their purchases to $34 billion.

“Japanese companies are getting serious about acquisitionsabroad,” said Hernan Cristerna, head of M&A for Europe, theMiddle East and Africa at JPMorgan in London.

Takeda Pharmaceutical Co.'s $13.7 billion takeover of NycomedASA, a Norwegian supplier of pharmaceuticals, was the biggestacquisition by an Asian buyer in Europe. More recently, SuntoryHoldings Ltd. entered talks to buy bottled-water assets fromFrance's Danone SA, people familiar with the matter said inOctober.

On the whole, a bleak economic outlook hasn't changed thefundamental attractiveness of at least some European companies,dealmakers say.

“International companies are stepping up their focus on Europe,”said Jean-Baptiste Charlet, head of global industries for Europe,the Middle East and Africa at Morgan Stanley. “The euro crisisstill scares them, but there's a lot of technology to be gleanedand the companies here are very well-developedinternationally.”

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