Global M&A markets have endured a difficult year, and European dealmaking has been no exception. Rising interest rates, high energy costs and geopolitical uncertainty have been just a few of the myriad challenges facing corporate and private equity dealmakers in recent months. The full report drills down into the details of last year’s M&A markets and explores the outlook for 2023.
Through the rest of 2023 and into 2024, several structural and strategic drivers will be at play in the European M&A market:
Corporate divestitures
Tougher macroeconomic conditions are pushing companies to reconfigure operations, divest unwanted assets, raise capital and focus on core business lines.
An uptick in carve-outs will offer private equity dealmakers a welcome pipeline of deal prospects, as will ongoing public-to-private deals, especially in the UK, where US private equity firms have been particularly active during the last 12-18 months, taking advantage of a strong dollar to acquire listed UK assets at attractive valuations.
Tech
Digital transformation is another cornerstone of long-term dealmaker strategies, as firms use tech to catapult operations into the digital age. Tech deals have been and will continue to be a key driver of M&A in Europe – and indicators already show abundant deal opportunities in this industry for dealmakers ready to act.
“My take on the key points being, dealmakers in Europe have shifted focus to smaller mid-market transactions that are easier to execute and less risky to finance. Current conditions provide a rare chance to make bold, market-shaping deals that may not be available when competition for assets intensifies during the next cyclical upturn. We have recently closed on a number of deals within various sectors, but particularly active in Tech and Healthcare, and we continue to be one of the most active mid-market M&A advisors within the UK”.
Private equity
Globally, private market dealmakers are also sitting on a record US$3.7tn of dry powder, of which US$1.1tn is sitting in buyout funds. Around three quarters of this buyout dry powder was raised within the last three years, so while buyout firms still have time to put money to work, they will have to start deploying capital war chests before too long.
ESG and the energy transition
Dealmakers are also turning to M&A to accelerate decarbonisation and make progress towards net-zero carbon emissions targets.
M&A will be one of the key funnels for capital to flow into renewables and energy transition projects at the required levels. Wider environmental, social and governance (ESG) concerns are also spreading into sectors other than energy, as investors and consumers become more socially and environmentally conscious.
“The role of ESG information in the valuation and performance of companies is more integrated now than ever before. In summary, Environmental, Social, and Governance (ESG) investing is a very broad field with many different investment approaches addressing various investment objectives. At a top level, breaking down ESG investing into three main areas that each have their own investment objective: First, ESG integration, in which the key objective is to improve the risk–return characteristics of a portfolio. Second, values-based investing, in which the investor seeks to align his portfolio with his norms and beliefs. Third, impact investing, in which investors want to use their capital to trigger change for social or environmental purposes, for example, to accelerate the decarbonisation of the economy.”
