Latest / The European Economy Podcast with Fexingo: ECB, Eurozone, and Continental Markets / Why Eurozone Mergers Are Surging in 2026
Transcript
- Lucas: You might think a rate hike, an energy shock, and a trade surplus that's shrinking would put the brakes on dealmaking in the Eurozone. But through June 2026, we are seeing a surge in mergers and acquisitions across the continent that frankly took most investment bankers by surprise. Luna: I was looking at the data this morning. First quarter Eurozone M&A volume hit about 185 billion euros, which is up 34 percent from the same period last year. That's the strongest start to a year since 2018. Lucas: Right, and that's happening against the backdrop of the ECB hiking rates for the first time since 2023 — just last week, in fact — and wholesale prices jumping more than a percent in May on energy costs linked to the Iran situation. So conventional wisdom would say 'uncertainty kills deals.' But the reality is more nuanced. Luna: So what's driving it? Is it just cheap financing before rates go higher, or is there something structural going on? Lucas: I think there are three forces at work. First, the rate hike itself is actually accelerating consolidation in some sectors because weaker players can't service their debt. Second, the energy price shock is forcing utilities and industrials to rethink their portfolios — they want scale to negotiate better input prices. And third, you've got a wave of private equity dry powder that's been sitting on the sidelines since 2022, and it's finally being deployed. Luna: Let's talk about that last point. Private equity firms raised record funds in 2020 and 2021, but they were slow to put that capital to work during the rate hiking cycle. Now, with rate expectations stabilising — even after last week's hike — they seem to be moving. Lucas: Exactly. And it's not just financial buyers. Look at the big strategic deal that just got cleared by the FTC — the Italian utility Enel acquiring a majority stake in the French renewable developer Neoen. That's a ten billion euro transaction that combines Enel's scale with Neoen's project pipeline. The logic is fundamentally about energy transition, which requires capital that smaller players can't access cheaply. Luna: That deal also highlights something interesting. It's cross-border within the Eurozone, which is a pattern we're seeing more of. Northern companies buying Southern, but also the reverse. In the past, cross-border M&A in Europe was mostly big German or French firms acquiring in Italy or Spain. Now you've got Italian companies like Enel, or even some Spanish firms, being the acquirers. Lucas: That shift in the direction of deal flow is one of the more underappreciated stories of 2026. Partly it's because Southern European firms have become more competitive after years of cost restructuring. Partly it's because their home markets are growing faster — you look at the GDP data for early 2026, Spain and Italy are outpacing Germany. And the weaker euro, which is now at 1.16 against the dollar, makes Eurozone assets cheaper for non-European buyers too. Luna: But not all sectors are equally hot. I was looking at the breakdown — industrial and energy deals are up sharply, but consumer and retail M&A is actually down. So the surge is very concentrated. Lucas: That's a crucial point. The energy shock is reshaping the industrial map. German chemical companies, for instance, are restructuring — BASF announced it's selling its coatings division to a private equity consortium. That's a business that had been part of BASF for decades, but now the company needs cash to invest in its core operations and reduce debt. Luna: And the buyers in those situations are often private equity or sometimes Asian acquirers. There's been a noticeable uptick in Chinese and Middle Eastern sovereign wealth funds looking at European industrial assets. They see the weaker euro and the temporary dislocation from energy costs as a buying opportunity. Lucas: Which brings up the regulatory angle. The European Commission has been tightening its foreign subsidy rules, and several member states have introduced screening mechanisms for strategic sectors. So far it hasn't slowed the overall pace, but it has shifted the mix. More deals are structured as joint ventures or minority stakes to avoid triggering full reviews. Luna: There's also the question of premiums. In a rising rate environment, you'd expect acquirers to be more cautious about overpaying. But the data shows average premiums in Eurozone deals are running around 32 percent this year, which is actually above the historical average of 28 percent. Lucas: That suggests buyers are willing to pay up for assets that offer a strategic hedge — vertical integration, supply chain security, or exposure to the energy transition. The premium on a renewable developer like Neoen was reportedly around 35 percent, and Enel still got the deal done. When you're betting on a structural trend like electrification, a few extra percentage points on the purchase price don't seem to matter as much. Luna: So if you're an investor in Eurozone equities, does this M&A wave actually matter for stock returns? Historically, merger booms tend to signal that markets are near a peak, and many deals destroy value for the acquirer. Lucas: That's the conventional warning, and it's worth heeding. But I'd argue this cycle is different in one key respect: the deals are being driven less by CEO hubris and more by genuine structural necessity. Companies that don't adapt to the energy transition, or that can't achieve scale to manage higher input costs, risk being left behind. So the consolidation we're seeing may actually improve the long-run competitiveness of Eurozone industry, even if individual deals don't all work out. Luna: Still, you have to watch the leverage. With the ECB hiking, companies that load up on debt to finance acquisitions are going to feel the pain if rates stay higher for longer. The corporate bond market has already started to discriminate — high-yield spreads widened about 15 basis points just in the last week after the rate decision. Lucas: Right, and that brings us back to the core tension. The M&A surge is real, but it's happening in an environment where financing costs are rising and geopolitical risks are elevated. The UK economy shrank in April, partly due to the Iran situation. If the Eurozone economy starts to contract, some of these deals could look very different in retrospect. Luna: Before we wrap, I want to step back for a second. You know, making sense of these cross-currents — rates, energy, deal flow — it's a lot to track. If today's episode helped clarify something about where the Eurozone economy is heading, honestly, that's what we're here for. And if it felt worth a coffee to you, you can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, listener support is what keeps this show ad-free and independent. Every little bit helps, but honestly, no pressure. We're just glad you're listening. Luna: So back to the deals. One more data point I want to flag — the Vanguard FTSE Europe ETF, ticker V-G-K, is up about 3 percent over the past five days. That's partly a bounce from the rate hike being less hawkish than feared, but it's also reflecting real economic momentum in the region. Lucas: The Eurozone economy grew at an annualised rate of 1.6 percent in the first quarter, up from just 0.5 percent in the prior quarter. That's not a boom, but it's a solid expansion. And the M&A data is one of the leading indicators that corporate confidence is returning, even if cautiously. We'll be watching second-quarter numbers closely to see if the pace holds. Luna: Alright, thanks for joining us. Until next time.