• Opportunities of investorsAsset p

• Opportunities of investors
Asset prices in Europe, overvalued for so long, are significantly lower than they have been for years. Today, it costs less to buy a business here than a similar one in Asia, for example, and right now the private sectors in Italy, Greece and Spain are replete with performing assets at discount valuations. With banks and other investors having to sell off huge portfolios of distressed assets and debt, it’s a buyer’s market for the right company.
As our survey shows, foreign investors are becoming increasingly aware of these opportunities, especially in Asia. While their North American counterparts are currently more cautious, over three-quarters of Asian respondents see their European Union (EU) competitors struggling and recognize the opportunities to invest in European businesses that this presents. In fact, almost half (45%) of Asian businesses that we spoke to are actively engaged in or are planning to make strategic acquisitions in the EU during the coming year. This contrasts sharply with their less optimistic counterparts in North America, where just 7% have similar plans. However, many large US private equity firms are reportedly planning to take advantage of what they see as a unique opportunity, not by targeting direct acquisitions but by purchasing portfolios of structured debt from banks in Europe.
Certain political and regulatory developments in the euro zone will create intriguing opportunities for investors with an appetite for risk. Consider the German energy market. Having made the environmental decision to shut down all its nuclear plants within 10 years, Germany is in the process of attempting to transform its entire energy network by investing in infrastructure and seeking alternative supplies. Major energy companies, such as E.ON and RWE, have to reinvent their business models. As this new energy landscape takes shape, opportunities for promising investments are already appearing.
There are risks, of course. Having received heavy subsidies for years, German renewable energy businesses are not accustomed to strong price competition. With the subsidies cut and cheap solar panels available from China, German firms may face some big challenges. But this political decision is already having an impact far beyond Germany’s borders and will influence the European energy landscape for decades to come.
• Growth and the euro
Opportunities notwithstanding, however, economic and political risks remain high and are inextricably linked throughout the euro zone. Businesses will need to be aware of and prepared for these risks, whether they are hunting for bargains or preparing their defaces.
In many parts of the region, economists have flagged the real possibility of a double-dip recession. Even in Germany, Europe’s powerhouse economy and reluctant savior, forecasters are predicting less than 1% growth for 2012. Many politicians and economists, both inside and outside the euro zone, also worry about the threat that resurgent nationalism and protectionism could pose to the single market and the free movement of capital, goods and people across the EU.
To others, the threat of social unrest and political instability conjures up the unwelcome ghosts of Europe’s cheered past. As improbable as these more fevered fears may be, they could have a potentially detrimental impact on investor sentiment, especially overseas, as Europe’s once bright and shiny brand becomes more tarnished by the crisis.
Even if these direr predictions remain unfulfilled, a sense of semi-permanent crisis where European leaders are viewed as failing to take a firm grip of events and arrive at long-term fiscal solutions could mean that the currency and broader political risk remain a deterrent to acquisitions, however attractive the bargains. Our survey shows that just 45% of overseas business leaders are optimistic of any economic growth in the EU during the next 12 months, with a real north/south disparity. Fifty-nine per cent anticipate growth in northern Europe while only 39% expect any improvement in southern EU countries.
Fear of the euro’s disintegration and the reintroduction of national currencies continue to pervade both the markets and national psyches of many euro zone nations. On this issue, our survey also reflects a north/south divide in expectations. Most foreign business leaders believe the euro will survive (69%) but with fewer members (64%). Not surprisingly, Greece is the favorites to leave (29%), followed by Spain (14%) and Italy (12%).
Recognizing the likelihood of a splintering of the euro zone, potential investors will have to be meticulous in their due diligence and risk assessment. While 66% of the respondents in our survey conducted business in the EU during the past year (77% from Asia, 25% from North America), with a similar number intending to continue during 2012, companies are aware of the need to take steps to protect their interests. Believing that countries leaving the euro would be worse off for doing so (67%), companies would prefer to do business in countries unlikely to quit the euro zone (67%). To protect their interests, a similar number (63%) already have or would request that contracts take account of this possible scenario.
There are additional steps that companies could take to protect themselves against such risk. Irish building materials conglomerate CRH, for instance, recently downgraded its listing on the Dublin stock exchange and made its primary listing in London. The greater liquidity of the London market may have played a role in the company’s decision, but the British pound’s independence from the euro could also have added to the appeal of a London listing. In fact, most of our survey respondents (72%) believe that the UK will increase in importance as a gateway to the European Union for international businesses.