Morgan Stanley bankers remain upbeat about merger prospects in Europe even though a debt backlog has all but stymied second-half dealflow, Reuters reports.
“Despite recent credit market jitters, the European M&A environment continues to be relatively robust,” according to internal research in a report entitled “M&A Market Update: A Bump in the Road?”
The sentiment stems mainly from the bank’s view that M&A activity is most closely correlated to corporate return on equity, which is at one of its highest levels on a three-year rolling average — about 11 percent — in the last 20 years.
“Given that the outlook for corporate profitability for 2008 continues to be robust, this would suggest continued M&A activity amongst corporates,” one of the slides says.
A June 30 survey of chief financial officers by Morgan Stanley found that M&A was the top priority for use of capital among seven categories. Just two years ago, it ranked last.