A rise in investor risk aversion sent the Athens stock exchange and other international bourses much lower last week, caused turmoil in credit markets and created serious doubts about the duration of the mergers and acquisition (M&A) binge that has underpinned stock prices in the last few years. However, barring a halt in international M&A activity and a global financial crisis, both of which are deemed highly unlikely at this point, the number and magnitude of corporate deals in Greece should not be greatly affected. Against this background, the internationalization of the ownership of local companies should continue unabated. Ever since the Athens bourse bubble burst in the fall of 1999, Greek retail and institutional investors have been selling more shares than they have been buying. This has reduced their ownership in listed companies as foreign investors – institutional investors, legal entities and individuals – picked up the slack. Foreign investors have continued to be net buyers of Greek shares for years, providing liquidity in the local market. They have placed more than -4 billion in net purchases of Greek stocks since the start of this year alone, at the same time that local investors have withdrawn a net amount of more than -4.5 billion. Judging from their reported gains, their choice was generally speaking a wise one, because they were the ones who primarily benefited from the manifold increase in the earnings and shares of Greek companies during this period. This has been especially true since 2003, when world stock markets began recovering from the worst bear market since 1929. Contrary to the trends seen abroad, the rally of the Athens bourse and the concurrent rise in the foreign ownership of listed companies has not been accompanied by a significant pick up in corporate activity. M&As have not been the strong point of the Athens bourse, which lags behind other European markets. Foreign investors have been content with a steady rise in the earnings per share of listed companies and have had lower expectations regarding corporate deals. Whenever they had the opportunity to buy shares in state-controlled companies, they took advantage. This was the case with the sale of a 10 percent equity stake of OTE by the government and the sale of an even larger equity stake in state-controlled Postal Savings Bank (TT) in the last couple of months. M&A obstacles Although market speculation concerning corporate deals has been high from time to time, M&A activity was never the strong point of the Athens bourse and did not characterize the Greek economy in general. This may be explained by disagreements over who was going to run the new company or different opinions among the family members that owned a company and other reasons according to investment bankers who were involved in the negotiations. It is only when the owners understood they had no other option but to sell, i.e. because the company was losing market share or was incurring losses, that they yielded and a deal was done. Last year, M&A activity involving at least one Greek company reached about -18 billion compared to more than -1.2 trillion in the whole of Europe. The figure would have been much lower if it were not for the purchase of a significant stake in Turkish Finansbank by National Bank, the acquisition of Emporiki Bank by Credit Agricole of France and Germanos chain retail stores by CosmOTE. Nevertheless, a number of deals have been concluded, such as the purchase of Greece’s third and fourth largest mobile companies – TIM Hellas, since rebranded Wind, and Q-Telecom – by a company controlled by Egyptian businessman Naguib Sawiris, and the completion of the deal for the acquisition of Alpha insurance by France’s AXA. But the bids of MPB (Marfin Popular Bank) to control Piraeus Bank and the Bank of Cyprus did not succeed, taking some excitement out of the market. Rumors about National Bank and Alpha Bank reviving talks on a merger have similarly not been confirmed. So, despite a handful of deals involving smaller companies and persistent rumors about many others, no major acquisition took place until MIG (Marfin Investment Group) had successfully completed its share capital increase of -5.2 billion. MIG’s deal with the major shareholders of Vivartia, one of Greece’s largest food companies, to buy their stakes and control the company generated interest and fanned expectations and rumors about the new targets. The fact that Wind’s Sawiris and the management of PPC, the state-controlled Public Power Corporation, appear to be close to reaching a deal, and the Wind group will buy the rest of Tellas, an alternate telecoms carrier, have also added to excitement lately. But given the rout in credit markets last week, one wonders whether this will put a halt to M&A deals in Greece. Already there appears to have been some fallout, with a number of major international buyout deals not being completed last week due to difficulties in financing them. Unless the stock market correction develops into a bear market and there is a credit crunch, it is not thought that the pipeline of Greek M&A deals will be blocked for the following reasons. In major deals, it is more likely to see a stock swap rather than cash payments. This is more possible in the banking sector if two large Greek banks decide to tie the knot. In other deals, there will be a cash payment component but the necessary financing should be easily secured either through own funds or bank loans that a cash-rich company will have no problem obtaining. There is a question about MIG and other private equity firms scanning Greek companies for buyouts. However, MIG, the biggest local player, has not put very much of the -5.2 billion raised for acquisitions to work so far. MIG has told the investment community that it plans to raise up to -15 billion for acquisitions in Greece and abroad. And MIG, unlike other private equity groups, has a bank (MPB) behind it. So MIG will not have to face any major obstacles in raising the necessary financing for a deal. Therefore, unless there is a major crisis, Greek M&A deals in the pipeline are not particularly threatened by the tougher conditions in credit markets. They are more threatened by the high prices demanded by their major shareholders and the feuding among family members controlling the companies that have been targeted.