Last month, Kraft Heinz made, and then pulled, an audacious $143 billion bid on Unilever. Earlier this month, the Dutch paint maker Akzo Nobel rejected a $22 billion acquisition bid by American rival PPG Industries Inc. The two unsolicited bids on European Firms may not be the last we have seen this year.

This is because leverage in Europe looks very low by global standards, as companies exploited cheap debt costs amid quantitative easing. Besides, with a weakening euro and pound, European issuers are starting to look tempting takeover targets for foreign buyers, according to Bank of America Merrill Lynch.

European Firms
Leverage at European Firms

In a research note, the bank said there are already signs that the “end of QE” is prompting European companies to take on a more aggressive balance sheet mindset.

“The change of heart looks to be driven by the steady stream of foreign corporates trying to acquire European assets. Part of the attraction is that corporate leverage in Europe looks very low by global standards,” it said in the research note March 15. “But European companies are fighting back against their own takeovers and more are starting to explore ‘strategic options’ for unlocking shareholder value.”

Akzo, for example, has begun to consider spinning off its chemicals unit in order to unlock shareholder value. Unilever, on the other hand, has publicly called on the U.K. to create a “level playing field.” Effectively, the Anglo-Dutch company’s CEO, Paul Polman, is urging regulators to grant more time than the 28 days for target companies to defend themselves.

European Firms and sectors

According to Merrill’s research note, basic materials, media, industrials, retail and healthcare companies in Europe are especially vulnerable to takeover bids because they are more deleveraged when compared with global peers. With American equity investors less keen on high leverage multiples, European companies look easy takeover targets for U.S. companies, simply to help facilitate some deleveraging, the bank said.

The bank expects European companies to respond with “more aggressive balance sheet mindset” and grow bigger to avert takeover bids. Some European issuers are carrying out strategic reviews of their capital structures, with a significant uptick in this trend compared to last year.

In addition, Merrill takes note of the emerging populism in Europe. As a consequence, governments in Europe are “starting to fret about losing their ‘strategic assets’ to outsiders,” it pointed out. Job losses arising from such mergers are an additional source of worry, and certainly was the case withj the unsolicited bid on Unilever.

“But in today’s populist climate, we think this creates pressure on European companies to get bigger, to stop them from being takeover prey. That means pressure on European companies to acquire (‘buy or be bought’), or to engage in leveraged recaps,” the bank concluded.