* Companies still wary of large deals
* European M&A volumes down by a third this year
* July best month but still well below pre-crash level
By Sophie Sassard
LONDON, July 30 (Reuters) - A flurry of mergers andacquisitions in Europe this month, culminating in the $35billion mega merger between global ad agencies Omnicom andPublicis, marks a gradual pickup in deals rather than a new waveof big ticket transactions.
In the wake of the 2007-09 financial crisis, companies arewary of embarking on large deals that could strain their balancesheets and their relations with investors, many of whom wereburnt by overleveraged takeovers during the boom.
Even with the Omnicom and Publicis tie-up, the largest dealin Europe this year, European M&A volumes are down by a third sofar this year, according to Thomson Reuters data.
July's figures, which also include Vivendi's $8.2billion sale of a majority stake in videogames publisherActivision, mark the best month yet for deals in Europe with atotal of $102.8 billion, but that is still nearly two thirdsbelow July 2007 before the finanial crisis tore up the market.
"One swallow does not a summer make," said Olivier Pecoux,co-chief executive of the Rothschild Group, Publicis' adviser onits merger with Omnicom, as well as the sole adviser to Essilorin its $1.73 billion acquisition of Transitions in the UnitedStates.
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Some companies such as Omnivision and Publicis are pursuingdeals to cope with rapid change in their industries or as aresponse to consolidation in the case of Spain's Telefonica andNetherlands-based KPN combining their German units in a$10.7 billion deal. But many others are put off by thedifficulties of agreeing atransaction.
"We are working on a number of transformational transactionsat the moment as many companies feel the need to adapt to a newenvironment while the key ingredients for M&A are there too.However, it remains a very challenging market for dealmaking anda lot of deals still fail," Pecoux said.
British water company Severn Trent recently rebuffed a $8.2billion takeover bid from Canadian Borealis in a disagreementover price and CVC's attempt to take UK-based gaming firmBetfair private fell apart after failing to agree onprice and strategy.
Last year, Germany opposed a tie-up between aerospace groupsEADS and BAE Systems in what would have been a $45 billionmerger.
Such failures make CEOs wary.
"This does not give confidence to CEOs to get out and pushforward with M&A deals," said Gilberto Pozzi, head of EuropeanM&A at Goldman Sachs.
"Now, what it very important for market confidence is toclose the recently announced deals."
LONG MEMORIES
Senior advisors do not expect M&A activity to go back topre-crisis levels anytime soon.
"M&A was never gone. It's just that the volume of deals havereset to a lower level in the wake of the crisis.", said RichardCranfield, chairman, global corporate group at law firm Allen &Overy.
"People have long memories. No one wants to get tooleveraged for instance, and that's something people scrutinize alot when it comes to M&A."
Boards, shareholders and executives have begun subjectingtransactions to greater scrutiny since the financial crisisexposed the danger of overpaying for assets.
Companies will often compare deployment of acquisition cashwith more conservative and popular actions such as buybacks anddividends, bankers said.
On top of this, regulation is also getting tougher,especially in Europe and in certain sectors such as telecoms.
"If the checklist for a deal was 3-4 boxes to tick in 2007,it is more 6-7 now." said Kasim Kutay, co-head of Europe atMoelis & Company, which was sole adviser to Omnicom on themerger with Publicis.
CROSS BORDER BOOST
Recession-hit Europe has, however, become attractive asbuyers in the United States and emerging markets areincreasingly seeing opportunities in the regions's relative lowvaluations.
U.S. companies only accounted for 11 percent of takeovers ofEuropean firms so far this year compared to 21 percent lastyear, according to data compiled by TR. But bankers expect theshare of U.S. acquisitions into Europe to grow as concerns amongAmerican CEOs over the eurozone crisis are gradually receding.
"Companies continue to review opportunities to acceleratetheir earnings growth and improve their portfolios ofbusinesses. It is therefore unsurprising to see companiestransacting when there is an opportunity and alignment of viewson value, for example in Europe we have again seen activity fromU.S. companies buying," said Mark Warham, Vice Chairman, Head ofEMEA, M&A at Barclays.
Recent examples include U.S. generics firm Perrigo's $8.6billion acquisition of Ireland-based Elan, on which Barclaysadvised Perrigo, and General Motors taking a sevenpercent stake in Peugeot last year.
More could come with AT&T 's rumoured interest forSpain's Telefonica and speculation that Verizon couldbuy Vodafone's stake in their joint-venture Verizon Wireless.
Players from emerging markets have also shown growingappetite for European companies with Carlos Slim's America Movil taking a 28 percent stake in Dutch telecommunicationsfirm KPN last year, Russian Railways last year buying Frenchlogistics group Gefco for 800 million euros ($1.06 billion) andHutchison Wampoa recently looking at a controllingstake in Telecom Italia.
Meanwhile, European companies also feel the need todiversify away from their low-growth home market and willincreasingly seek acquisitions in the United States, LatinAmerica and Asia, said Allen & Overy's Cranfield.
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