Market Views: EU to ‘relax merger rules’ - sectors that could see change

According to an FT report the European Union has drafted reforms to significantly relax merger rules in a bid to create ‘European champions’ that can take on US and Chinese firms.It follows the calls in the Draghi report for European champions and could usher in a spate of cross-border M&A in Europe this year, which may act as a positive catalyst for valuations.

If the EU genuinely loosens merger rules to allow “European champions”, the most likely deals cluster in fragmented, capital-intensive sectors—telecoms, banking, defence, energy, and transport. That’s where scale matters and where regulators have historically blocked consolidation.

There is a question mark over whether this is about allowing mergers to happen organically over time or whether the EU is actively pushing for the creation of some national/EU champions. There are also questions over whether certain sectors could be affected more by the reforms, for instance if the new rules were to place greater importance on aspects long neglected, such as innovation or defence. There are also questions over the extent of reforms as some member states may be reluctant to allow larger firms to extract more rent from consumers. 

Per the FT, EU antitrust regulators will pay closer attention to the impact of mergers on “scale, innovation, investment and resilience as pro-competitive factors that can benefit from a degree of consolidation”.

In defence in particular there are obvious geopolitical reasons behind pushing for scale to foster innovation and investment. The European defence market is nationally fragmented at a time when all roads point to the need for greater cohesion and cooperation among EU members to back up commitments to spend more in an ever-more challenging and complex world.The STOXX European aerospace and defence index rose 74% in 2025, building equity that can be used for deals.

Joint ventures are common in the European defence sector, and deal-making has picked up, but relaxation of merger rules could see some larger-scale merger activity to enable the creation of a handful of quasi-state backed ‘European champions’. 

In my view the other most obvious sector for actionis telecoms, where mobile and broadband infrastructure is vital but extremely expensive – it'swhere scale matters most. There is a clear strategic logic is to create pan-European network scale, capex efficiency (5G/6G). Barriers include cross-border complexity and the ever-present competition concerns, but relaxation of rules could usher in pan-European mergers, going beyond 4-to-3 deals.

There is a clear line between relaxing merger rules and treating telecoms as a single European market, which could significantly reduce the number of operators by addressing the chronic fragmentation in the sector. Note that the UK has already moved in this direction, last month clearing the merger of Vodafone’s domestic business with Three UK.In any event, further consolidation is likely following the restructuring of Telecom Italia and the formation of Masorange (Orange/Telefonica) in Spain.

Banking is the other area where I would anticipate activity to increase should rules loosen. EU banking is still nationally fragmented and its lenders have fallen behind their US peers in investment banking and deal-making, albeit regulators are wary that creating larger banks creates too-big-to-fail risks.

Other areas likely to see activity would be in capital-intensive areas such as energy/renewables/utilities and transport – perhaps that Alstom – Siemens Mobility deal blocked in 2019 by the European Commission, will go ahead after all? Merging the train-making businesses of the German and French engineering giants was aimed at taking on China’s CRRC. In energy, there is rationale for pan-European mergers to create a European supermajor to rival Shell/Exxon etc, creating the scale needed for energy transition, boosting energy security and improving competition downstream.