Cross-Border deal activity assessed.

• Position: Business Briefs - Europe, U.S. - Brief Article

The merger business remains in the doldrums, relatively speaking, but some experts talk about a new wave of European buyers sizing up companies in the U.S.

"There is an unprecedented number of European companies preparing for a U.S. acquisition in the next 12 to 18 months," says Ulrike Zeilberger, a managing director with UBS Warburg AG. "There are a lot of inquiries about getting name recognition in the U.S. There is a real pent-up demand."

Zeilberger, a European-based investment banker, spoke at a midwinter panel discussion in New York on international deal-making sponsored by The Directors Roundtable. She believes that the slowdown during the past 18 months is temporary, and that the spurt of European acquisitions of U.S. firms in 1998-2000 was driven in part by the newfound acceptance of non-U.S. equity, particularly in the form of American Depositary Receipts (ADRs) -- essentially, stocks of foreign-listed companies sold in the U.S.

But Zeilberger argued that "flowback" remains a serious impediment to cross-border deals. Flowback refers to the selling of shares received by target company shareholders during the process of the merger, which can be significant if institutional investors don't like the deal or worry about one of the company's roles in the combined entity. "Flowback is a true scare word for cross-border M&A," she said.

In a typical international merger, she said, as many as 50 percent of the target company's shares may "flow back" following the acquisition -- and even more in deals involving regional industries or retail firms. Zeilberger argued, however, that flowback can be anticipated and managed proactively, especially if the companies communicate well...