European M&A Trends 2023

European M&A Trends 2023

16 Nov    Business, Finance News

M&A trends in Europe include the current patterns, changes, and movements in the landscape of mergers and acquisitions (M&A) within a specific sector, region, or market over a given time period.

Monitoring merger and acquisition trends is critical for organizations, investors, and analysts because it provides insights into the strategic decisions, preferences, and dynamics that influence merger and acquisition activity.

M&A activity in the Europe, Middle East, and Africa (EMEA) region reached an all-time high at the close of last year, and the strong momentum in dealmaking was set to continue far into this year. However, the Ukraine conflict, high inflation, rising interest rates, and weaker economic growth all weighed on activity in the second half. Furthermore, ongoing geopolitical uncertainties and global environmental issues dim the prospects for 2023.

Despite the hurdles, M&A prospects persist, and the deal pipeline remains robust. The technology, media, and telecommunications sector is thriving, owing to increasing technological upheaval. The industrial and chemical sectors are especially strong in the German-speaking area of Europe, as corporations conduct portfolio assessments to unlock value. Business services and real estate are growing, thanks in part to investors seeking safe havens.

Private equity capital continues to support the market. During 2023, activity is projected to be driven by undervalued acquisition targets and distressed sales. Private equity firms, in particular, are expected to be eager buyers of troubled businesses. The weak euro and pound are driving dollar investors to assess prospects in the eurozone and, in particular, the United Kingdom.

Despite a tough backdrop, KP Tech Corporate Finance states that dealmakers are unusually optimistic this year. Although there are economic headwinds, the consequences of the Ukraine crisis, vendor/acquirer value disparities, and a difficult financing environment, most respondents expect European M&A activity to expand over the next year, and the majority have deals on the horizon.

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The following are some of the report’s significant findings:

M&A expectations are high: 73% of dealmakers expect European M&A activity to expand over the next 12 months, up from 53% last year. Almost all are actively thinking about M&A.

Undervalued targets and distressed sales to fuel activity: The availability of undervalued deal targets is projected to be the main buy-side driver, while distressed sales are expected to be the biggest sell-side driver.

Funding costs will rise: 87% of dealmakers expect funding to be tighter in 2021 compared to 2021, with 45% expecting it to be substantially difficult.

ESG is moving up the M&A agenda: 90% of respondents expect ESG monitoring in their dealmaking to increase over the next three years, up from 72% in the study conducted in 2021.

M&A litigation is on the rise. We have witnessed a considerable increase in M&A claims across Europe in the last few years, and we believe that this trend will continue given the significant issues that firms confront across the region.

Trends to Watch

The main trends to watch in M&A include:

Energy

The year 2023 might usher in a new age in energy, heralding the start of a partitioned global oil market. Energy, particularly oil, has typically moved freely around the world to the highest bidder over the previous three decades. Sanctions imposed by the EU and the US on Russian exports have thrown that market on its head, effectively separating the world once more between east and west.

Technology

Generative algorithms that write or make graphics that appear like they came from a person have propelled artificial intelligence into the mainstream. With money pouring in, the race is on to develop these technologies into the cornerstone for a new mass-market computing platform.

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Private Capital

Patient capital firms include Blackstone, CVC, and KKR. Their savings can endure a dozen years or more, allowing them to ride out market upheavals triggered by unanticipated events such as the Ukraine crisis.

Commercial real estate

Nobody in the commercial real estate industry expects an easy ride in 2023. A decline has already begun and will likely worsen. Analysts and investors are wondering how far the market may fall before reaching a new equilibrium. When rising interest rates slammed office, retail, and warehouse owners around the world last year, many were still determining the impact of the pandemic on their tenants.

Most active buyers

There are several active buyers making big transactions to own businesses, they include:

Wael Sawan takes over as CEO of Shell, Europe’s largest energy business, this month, succeeding Ben van Beurden, who served as CEO for nine years. Sawan, a Shell veteran, inherits a corporation that is profitable but faces serious doubts about its future. He has been officially appointed to carry out van Beurden’s energy transition strategy. However, given Shell’s size and influence, even a minor shift in attitude or tone might have a substantial impact on the sector.

Elon Musk is the Financial Times’ pick as the techie to watch in 2023 for the third year in a row — but this time, for all the wrong reasons. Even if he keeps his commitment to step down as CEO of Twitter, his personal ownership and near-constant presence ensure that his shenanigans at the social media business will keep him in the spotlight.

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Orlando Bravo, the millionaire co-founder of Thoma Bravo, has distinguished himself for his ability to obtain funds and invest it swiftly. In less than two years, his business has collected more than $55 billion and pledged to buy out more than a dozen publicly traded software companies.

Sandeep Mathrani took over as CEO of WeWork in 2020 with a simple promise: he would bring the shared office company back into the black. Mathrani has avoided the spotlight that his predecessor Adam Neumann liked and cut expenditures, but WeWork is still losing money. The ability of Mathrani to earn a profit in 2023 may provide some insight into how other debt-laden enterprises will perform in the fast-changing world of work.

Large M&A Transactions

Some of the current M&A transactions include:

Thoma Bravo has recently utilized up to $8 billion in equity to secure takeovers, depending on unusually significant direct commitments from deep-pocketed investors. It remains to be seen whether these transactions will generate sufficient returns.

The agreement for Opentext to acquire Micro Focus at $5.8 billion was reached on August 25, 2022. During the epidemic, it appeared like SAAS businesses would reach values that would place them among the most highly valuable companies in the world. With the return of workspaces, prices have cooled, yet SAAS companies remain tech industry darlings. The acquisition of Micro Focus by Opentext of Canada is the latest in a long series of industry consolidation transactions.

Marketer brief:

The research provides a thorough evaluation of deal-making sentiment in Europe’s M&A market, reflecting the views of corporates and private equity firms operating in Europe on what they anticipate for the coming year and the relevant stakeholders.

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