Sounding out: Siemens shelved a possible sale of its hearing-aid unit after failing to get a €2bn bid

A slump in European mergers and acquisitions may worsen as contagion from the Greek fiscal crisis rattles markets, eroding an already weak appetite for deal-making.

April was the worst month for European takeovers in 18 months, with the total value of transactions dropping to €25bn from €83.6bn in March, data compiled by Bloomberg shows.

That's the lowest level since November 2008, two months after the collapse of Lehman Brothers.

European stock and bond markets tumbled recently after Standard & Poor's lowered Greece's debt to junk, cut Portugal two steps and downgraded Spain a day later.

"People have real concerns over these countries and that will affect merger activity because companies will hold back from making decisions," said corporate financial adviser Philip Keevil. "The last thing the M&A industry needs is increased uncertainty that will cause people to pull back."

Europe's fiscal crisis worsened last week after Germany delayed approving emergency funds to debt-ridden Greece and the cost of insuring Portuguese and Spanish debt against default surged to record levels.

The dislocation in financial markets is causing "valuation gaps in expectations" and exacerbating a disconnect between buyers and sellers, said Robert Adam, a London-based mergers and aquisitions expert. "Boards of targets are asking for premiums that buyers see as unrealistic," Adam said. "Bidders are saying 'get real, the world is different'."

There were 264 takeovers of European companies in April, totaling €15.1bn, compared with 584 takeovers of companies in North America for $61bn and 574 acquisitions in Asia for a total value of €17.2bn.

Royal Bank of Scotland Group recently halted plans to sell its aviation-finance unit, according to a source.

Germany's EON decided last month not to sell its Italian natural gas grid after bids weren't "attractive enough," spokesman Mirko Kahre said.

Siemens shelved a possible sale of its hearing-aid unit in March after bids fell short of the €2bn sought.

Attempts to raise cash in Europe through initial public offerings are also being affected, with companies including Essar Energy, UralChem Holding and Grupo T-Solar Global postponing or reducing their offerings last week.

Essar Energy, a unit of India's Essar Group, recently cut the price for its London IPO below the initial range, while Russian fertiliser producer UralChem postponed its share sale.

In Britain, concern about the possibility of a hung parliament in the election contributed to uncertainty. The pound fell 5.3% against the dollar this year on expectations that power-sharing between the country's three main political parties would create a government too weak to fix Britain's finances.

"The possibility of a hung parliament caused a lot of plans to get put on hold," said Joel Wheeler, an M&A expert. "It seemed to be a double whammy of political and economic uncertainty."

The sovereign debt problems will have "serious knock-on effects" on financial markets as companies "fear that there might be worse to come," Keevil said.

"One of the reasons volumes have been so low already is the degree of caution among senior management," and the sovereign-debt problem "won't help that," he added.