Global Dealmakers 2023: European M&A market update

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BY : Diego GutiérrezNovember Mon, 2023

The European M&A market in 2023 has been navigating through a tumultuous period marked by several macroeconomic and geopolitical challenges. A combination of rising interest rates, soaring energy costs, and geopolitical uncertainties, notably the ongoing situation in Ukraine, has created a complex environment for dealmakers, both corporate and private equity. These factors have led to a noticeable decline in M&A activities, with the first half of 2023 (1H23) witnessing a significant downturn in both the value and volume of deals - a 52% and 17% year-on-year decline respectively.

Baker Tilly´s comprehensive report "Global Dealmakers 2023" was recently published, a comprehensive analysis of trends in the European M&A market. As we can see in it, the different factors have not affected all sectors equally.

Global Dealmakers 2023: European M&A market update

The European tech M&A landscape in 2023 presents a dynamic and evolving environment, shaped by various macroeconomic and strategic factors. Here you can find key trends and insights from the report include:

European M&A market trends for tech sector

  1. Challenging Market Conditions: The European M&A market has faced a tough year with challenges like rising interest rates, high energy costs, and geopolitical uncertainty. This led to a significant decline in M&A activity in the first half of 2023 (1H23), with a 52% drop in deal value and a 17% decrease in deal volume compared to the previous year.
  2. Shift in Focus to Mid-Market Transactions: Despite these challenges, it's noteworthy that turbulent times often pave the way for transformative and strategic M&A activities. In Europe, dealmakers have demonstrated agility by pivoting towards smaller, mid-market transactions, which are less risky and easier to finance. This shift aligns well with the persistent long-term trends of digitalization and energy transition, which continue to be integral to strategic corporate objectives.
  3. Persistence of Digitalization and Energy Transition Trends: Despite market challenges, long-term trends like digitalization and energy transition continue to be key drivers of M&A activity.
  4. Improving Conditions: There are indications of improving conditions, with inflation showing signs of cooling, which could lead to more stable interest rates and better conditions for deal structuring.
  5. Tech Sector Opportunities: In the technology sector, despite the broader market downturn, there remains a dynamic landscape for M&A activities. The sector continues to be a cornerstone of long-term dealmaker strategies, with firms leveraging technology to spearhead their operations into the digital age. The persistence of digital transformation initiatives has ensured that tech deals remain a key driver of M&A in Europe. There are abundant opportunities for proactive dealmakers, particularly in areas aligned with digital capabilities enhancement and strategic tech acquisitions.
  6. Private Equity Funds with Significant Resources: Globally, private equity dealmakers are sitting on a record amount of dry powder, estimated at around US$3.7 trillion, with approximately US$1.1 trillion in buyout funds. This capital availability indicates that there’s significant potential for investment in the market, despite the current challenges. The European tech sector, given its critical role in digital transformation, stands out as a prime target for these investments.
  7. Active Sectors and Markets: The technology, media, and telecommunications (TMT) sector is expected to be the most active in M&A, with significant activity also anticipated in industries like industrials, consumer products, and healthcare. The UK, Ireland, Central and Eastern Europe, and the DACH region (Germany, Austria, Switzerland) are key markets with a high number of potential deals.
  8. Focus on Mid-Market M&A: The European mid-market, characterized by deals valued between US$15 million and US$500 million, promises to be a hotbed of M&A activity. This segment offers a wealth of opportunities for both strategic corporate buyers and private equity firms. The mid-market is appealing due to its less complex nature and reduced regulatory and antitrust scrutiny compared to larger transactions. Additionally, the current market conditions have led to a cooling of valuations in the mid-market, presenting attractive investment opportunities at more reasonable multiples.
  9. Foreign Interest: Despite the challenges, European assets, particularly in the mid-market, continue to attract significant interest from overseas buyers. North American investors, in particular, have been active in the region, drawn by the combination of a large consumer market, skilled workforce, and advanced infrastructure. Similarly, investors from the Asia-Pacific region remain motivated to invest in European assets, seeking technology acquisition and market growth opportunities.
  10. TMT Sector Dynamics: The TMT sector in Europe, a pivotal area for digital transformation and sustainability, has experienced a shift in deal values but continues to be a primary focus for M&A activities, especially in the mid-market segment the value declined less than the overall. This sector is integral for businesses looking to enhance their digital capabilities and tap into new technological opportunities like AI, automation, and quantum computing.

Looking ahead, the tech market in Europe, despite facing macro challenges, is poised for resilience. There's a notable shift in risk appetite, with buyers becoming more discerning and focusing on technology assets that demonstrate sustainable profitability. For corporates, digitalization remains a long-term strategic imperative, while private equity investors continue to prioritize investments in technology and software assets, especially those with reliable, subscription-based revenue models.

In conclusion, the European M&A market, particularly in the technology sector, is navigating a challenging yet opportunity-rich market. The shift towards mid-market transactions, the resilience of the tech sector, and the substantial dry powder available to private equity firms indicate that, despite current volatilities, the market holds promising prospects for strategic and transformative deals in the near future.

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European M&A market update: Global Dealmakers 2023
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