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The Road to Recovery: European M&A Outlook 2022

Dealmakers say Private Equity best placed to flourish in the next 12 months

14/09/2021

71% of dealmakers agree that private equity (PE) firms are better placed than corporates to take advantage of buying opportunities presented by COVID-19, according to the ninth edition of the European M&A Outlook, published by CMS in association with Mergermarket.

The report offers a comprehensive assessment of dealmaking sentiment in Europe’s M&A market. It reflects the opinions of 330 corporates and PE firms based in Europe, the Americas and APAC about their expectations for the European M&A market in the year ahead.

PE firms have limited timeframes to deploy capital so are expected to move quickly to get deployment levels back on schedule. Whilst corporates are currently focusing on reopening offices and sites as COVID-19 restrictions ease, we expect greater activity from these strategic buyers as well as from the European and US SPACs keen to deploy capital.
Louise Wallace, Head of the CMS Corporate/M&A Group

While financial buyers may be better placed than strategic buyers, more than half of survey respondents expect the overall level of European M&A activity to increase over the next 12 months, with both corporates and PE firms eager to make up for lost time. This stands in stark contrast to last year’s poll, in which 78% of interviewees were preparing for a decrease in M&A.

Last year, the world was in a state of maximum uncertainty as economic activity slowed and markets more rapidly than at any time since 2008. However the European M&A activity has rallied strongly through the first half of 2021, with dealmakers returning to the market after navigating the initial wave of COVID-19 disruption and uncertainty in 2020. The COVID-19 risk remains but rising vaccination rates have reduced the chances of further lockdowns and economic disruption.
Vincent Dirckx, Partner and Head of the Corporate/M&A Practice Group at CMS Belgium

Although asset prices have held up through the pandemic and vast government stimulus has kept businesses from insolvency, almost a quarter of respondents (24%) see undervalued targets as the most important buy-side driver of M&A activity over the next 12 months. A similar share (22%) identifies distressed-driven M&A as the most important catalyst for sell-side activity.

The pandemic has also highlighted how business profitability is inextricably linked to public health and social and environmental stability, prompting dealmakers to build ESG criteria into their M&A strategies.

Survey respondents see this as only the beginning, with 72% expecting ESG scrutiny to increase during the next three years, and 65% predicting that due diligence will focus more on ESG factors over the same period.

Over the past 18 months, many companies have looked with envy at the multiples that newly-listed ‘ESG companies’ have attracted on the Euronext Growth trading market. That has generated a huge number of spin-offs and IPOs. The ‘E’ in ESG has been the common denominator, but the ‘S’ and ‘G’ must be carefully managed as well.
Johan Svedberg, partner at CMS Norway

Sector-wise, Technology, Media and Telecommunications (TMT) is among the sectors set to continue to dominate dealmaking.

In het tweede halfjaar van 2021 verwachten we dat TMT M&A het sterke tempo van de eerste zes maanden van het jaar zal aanhouden. De dealmaking zal blijven stijgen, en TMT zal zich onderscheiden als een van de belangrijkste sectoren voor M&A.
Ignacio Zarzalejos, Partner bij CMS Spanje

Methodology

In the second quarter of 2021, Mergermarket surveyed senior executives from 240 corporates and 90 private equity firms based in Europe, the Americas and APAC regions about their expectations for the European M&A market in the year ahead.

Among the 330 executives interviewed, 70% are headquartered in Europe, while the remaining 30% are equally split between the Americas and APAC regions. All respondents have been involved in an M&A transaction over the past two years and 67% of all respondents plan to undertake an M&A transaction in the coming year. All responses are anonymous, and results are presented in aggregate. Download the CMS European M&A Outlook.

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