RPT-Fear factor fades as global M&A hits seven-year high

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By Pamela Barbaglia and Sophie Sassard

LONDON, Dec 21 (Reuters) - Chief executives got theirdeal-making confidence back in 2014, emboldened by a cleareroutlook for their businesses to take the global value formergers and acquisitions (M&A) to their highest annual levelsince 2007.

The total was boosted by a rush of large deals in thetelecoms, healthcare and consumer sectors, with transactions,some of which had been contemplated for years, promising tocause a chain reaction as rivals move to defend their territory.

In the latest example British telecoms group BT's move to buy mobile operator EE is expected to put pressure onrivals to seek their own tie-ups as fixed-line and mobilenetworks and pay-TV services converge.

"The need to stay competitive and strengthen the corebusiness is the main catalyst," said Wilhelm Schulz, head of M&A in Europe, Middle East and Africa (EMEA) at Citi.

Global deal volume to Dec. 11 hit $3.27 trillion, up 40percent from the same period last year, according to ThomsonReuters data. This was the highest level since 2007, when thetotal was $4.12 trillion during a leveraged buyout boom whichsaw private equity firms sign multi-billion-dollar cheques andload companies with debt.

In contrast deals in 2014 were mainly driven by morecautious company boards, using shares rather than debt to fundpurchases.

Executives haven't lost all their post-crisis inhibitionsand still prefer safe bets rather than bold adventures such asFrench telecoms group Iliad's attempt to buy T-MobileUS.

"The market is rewarding tried and tested deals, driven bysynergies," said Paulo Pereira, a partner at Perella Weinberg.

GEOPOLITICAL RISK

But expectations that the pace of deal-making will keep upin 2015 have taken a knock from the oil price slump anddeepening Russian economic crisis.

"The geopolitical risk remains a concern for 2015," saidGilberto Pozzi head of M&A for the EMEA region at Goldman Sachs.

"If the oil crisis further deteriorates and politicaltensions escalate, M&A activity could suffer as CEOs wouldbecome more risk averse."

So far, however, the appetite for big deals shows no signsof weakening as the quest for market supremacy persists.

Comcast Corp's $45 billion bid for Time WarnerCable will give the pair a near 30 percent share of theU.S. pay TV market, while telecoms giant AT&T is looking to acquire satellite TV provider DirecTV in a $48.5 billiondeal.

Both deals are still under review with U.S. regulators.

In Europe Lafarge and Holcim aim tocomplete their merger next year, having secured European Unionapproval, to create the world's biggest cement maker with over$40 billion in annual sales.

However, some other potentially major deals barely got offthe drawing board, such as brewer SAB Miller's approachto family-controlled Dutch rival Heineken.

"There is no stigma to deal-jumping any more," said ChrisVentresca, JP Morgan's global co-head of M&A.

"Companies have greater confidence and can withstand a bumpin the road because there is less uncertainty on theirprospects," he added.

EUROPEANS BIDDING IN AMERICA

Expanding abroad has been a key motivator this year forEuropean companies looking to escape from the continent'ssluggish economies, with the United States a prime target.

In September Germany's Siemens struck a $7.6bnall-cash deal to buy U.S.-based Dresser Rand.

"The largest world economy is open for transactions and isgrowing in a more predictable way than many other geographies,"said Severin Brizay, head of M&A in EMEA at UBS.

At the same time U.S. firms are becoming more cautious aboutEurope. "They need to see that the economies in Europe arestabilized and going up, but there is not a big consensus onthat," said Ventresca.

Some also had to think again after the U.S. Treasury movedto deter so-called "inversion" deals whereby companies weremaking acquisitions to reincorporate abroad to avoid high taxesat home.

As a result U.S. drugmaker AbbVie pulled the plugon its $55 billion deal to buy Dublin-based Shire, whilePfizer faced a UK political backlash against itsproposed $118 billion acquisition of AstraZeneca.

However, changes in U.S. tax rules so far have not killedoff further inversion deals altogether.

"Companies will always factor in minimising taxes as theyconsider the best way to structure their business. That is theirjob," said Bob Eatroff, co-head of M&A for the Americas atMorgan Stanley.

NEW BUYERS

Meanwhile in Europe the emergence of unexpected butdeep-pocketed "left-field" buyers from developing economies hasraised the stakes for some prospective Western acquirers, including private equity firms.

Buy-out firms, whose acquisitions accounted for around 8 percent of the M&A market this year, have at times struggled tocompete on price.

Chinese buyers had a particularly strong year in Europe,bankers said, targeting Germany's medium-sized manufacturingfirms and distressed assets in Southern Europe.

"China needs M&A to achieve true international expansion,beyond markets such as Brazil or Africa, and a wider access totechnology," said Pereira.

With cross-border activity on the rise, the ingredients foranother busy year are all there with bankers predicting a newwave of deals in financial services, chemicals and energy aswell as continuing consolidation in both healthcare and thetelecoms, media and technology (TMT) sector.

"Investors tend to punish idleness," said Lazard Germany'sco-head of investment banking, Ken Oliver Fritz. (Additional reporting by Mike Stone in New York and ArnoSchuetze in Frankfurt; Editing by Greg Mahlich)