M&A activity in Western Europe to see moderate decrease

18 February 2019 Consultancy.eu 4 min. read

Dealmaking activity in Western Europe is expected to decrease moderately this year, according to a survey by corporate finance advisory IMAP among 100 dealmakers across its network.

While GDP growth will continue to decelerate in 2019, adding to declines from 2018, and liquidity will shrink, 54% of the advisors surveyed said they are ‘somewhat’ or ‘significantly optimistic’ about global mergers & acquisition prospects in the coming eleven months. Similarly, almost half of the M&A consultants are expecting an increase in deal volume growth in the coming year. Western Europe however faces the least optimistic M&A outlook of all regions, with 60% expecting a moderate decrease in deal volumes. 

According to Carsten Lehmann, an advisor at IMAP in Germany, key risks for Western Europe’s M&A market are a deteriorating economy, uncertainty of the Euro currency, Brexit uncertainty and rising interest rates. Daniele Sottile from IMAP in Italy echoes the works of his German colleague, stating “M&A on domestic business will slow down given increasing uncertainty in economic markets.” Also in Spain and in the Netherlands, the respondents expect the volume of deals to be lower than the level achieved in the year previous.

It is though not just all gloom and doom across Western Europe. Alexis Meeus, an expert at IMAP in Belgium, expects local M&A activity to grow despite “increasing political uncertainties, high market volatility and slower growth prospects”. He points at the solid performance of several market fundamentals, such as the high amount of capital that is reserved for M&A, at both corporates and private equity firms, and at the need for companies to turn to M&A to realise strategic goals such as growth, remaining relevant amid disruptive change and the need to insource external skills for innovation leadership. Cyril Kammoun, an IMAP advisor based in France, also regards innovation as a key driver for M&A activity in the country.M&A activity in Western Europe to see moderate decreaseMay Wu from IMAP in the Netherlands points out that the growing political conflict between the US and China, an event impacting trade flows and dealmaking activity between the two powerhouses, could open up possibilities for European companies. “While China - US deals will dip, Europe may see an increase of acquisitions from Chinese buyers.”

The need for company succession among businesses and entrepreneurs remains a hot topic for M&A advisors in Western Europe. A large group of owners of private companies, in particular baby-boomers, are looking for successors and expect to transition within the next 5-10 years. In a bid to capitalise on the good sellers’ market – deal multiples are at a high – a growing number of owners are bringing forward their decision to sell their business, either to exit their stake or because they need to guarantee succession. Globally, succession is mentioned as one the top three drivers of mid-market M&A activity in all regions.

Other major drivers of M&A activity in 2019 are: horizontal industry consolidation, international expansion, growth strategy execution and private equity exits. Deal value completed by private equity reached a ten-year peak in 2017, however, amid the prospect of a cooling market, investor appetite to exit lucrative ventures and portfolios is set to rise as firms seek to capture above market average premiums. 

Meanwhile, in the UK & Ireland, Brexit is predictably a major risk but also unknown for deal activity on the island. “In Ireland, Brexit remains a huge risk. UK is the largest market for most Irish companies that export. Even in the event of a ‘soft’ Brexit, the businesses of many of our clients may will be impacted significantly,” said John Sisk from IMAP in Ireland. Tero Tiilikainen, another Ireland-based M&A consultant, points out that Brexit may lead to a surge in distressed M&A activity, a development which according to IMAP’s respondents could extend into several mainland European markets. 

In Scandinavia, Lars Wikholm from IMAP in Finland describes the local M&A market as “quite stable” but one that is slowing, a trend which could be accelerated if Europe’s downturn becomes more pressing that the current outlook. Oyvind Solvang from IMAP in Norway and Bengt Jönsson from IMAP in Sweden foresee a similar outlook, while highlighting technology as the key market for growth and high multiples.