A roundup of Baker Tilly's European M&A market update

25 April 2020 Consultancy.eu
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Global accounting and consulting firm Baker Tilly has released the 2020 edition of its ‘European M&A Market Update’, an in-depth report on the key development and trends in the region’s mergers & acquisitions landscape. A round-up of the main findings. 

Already in 2019, Europe’s deal market took a big hit in deal value, dropping from a record $986 billion in 2018 to $775 billion in 2019. The value decline was due to a noticeable absence of megadeals: compared to the previous year when 10 transactions valued greater than $10bn were brought to market, there were only four similar deals in 2019. 

The volume of deals has also dropped, from around 8,000 deals to 7,710 deals. According to the researchers, a number of factors have come to play to subdue the market. First, slowing economic growth on the continent and the possibility of a recession has helped drive deals down over the past year.

European M&A trends

Growth across Europe was just 1.5% in 2019, compared to 2.2% the year prior. Among dealmakers, many anticipate this growth to slow further, with a recession more than likely in the year ahead, according to 92% of respondents (compared to 46% from opinions collected in February). 

Heightened geopolitical and economic uncertainty has also weighed heavily on dealmakers’ confidence. While a Brexit decision has finally been reached, the veil of uncertainty remains thick as the UK goes through a transitionary period in the process of leaving the EU. Likewise, ongoing trade disputes are causing unease, specifically the trade war between the US and China but increasingly tensions between the US and Europe. 

Rising protectionism and nationalistic turns in key European markets also caused many corporations to reconsider spending, specifically into neighbouring markets. The result has seen a drop in cross-border M&A from 53% of total European deals in 2016 to 50% in 2019, as dealmakers increasingly look within their home markets for opportunities. 

Which of the following best describes the likelihood of a global recession and a European recession within the next 12 months?

Covid-19’s impact on dealmaking

Baker Tilly’s report shows that the Covid-19 pandemic is having a clear impact on the M&A industry. In February 2020, 37% of respondents said they would increase their M&A spend in the year ahead compared with 32% who said they would be decreasing activity. By April 2020, while 26% said they will make increases, a full 73% will be decreasing M&A – and these respondents overwhelmingly confirmed their decision is based on the impact of Covid-19. 

Commenting on the report, Michael Sonego, a partner at Baker Tilly in Australia, said: “Deals are being put on hold and dealmakers are generally only cautiously optimistic that activity will increase as social distancing measures are relaxed and economies reopen. Even as governments inject record levels of stimulus into their economies, it remains to be seen how effective this will be to keeping businesses alive. As a result, it remains to be seen what kind of impact Covid-19 will have on dealmaking in Europe and globally.”