Welcome to the seventh edition of the CMS European M&A Outlook, published in association with Mergermarket.
M&A is still often the quickest way to achieve growth and success. The wall of worry will remain but that only will drive the need for more M&A, not its premature death.
Scott Moeller, Professor and Director, M&A Research Centre, Cass Business School
We are pleased to provide you with this year’s edition of the “European M&A Outlook”, published in cooperation with Mergermarket. The optimism amongst dealmakers for the future of European M&A has faltered somewhat since last year’s report. The past 12 months have seen a shift in sentiment in the M&A community and the beginning of a downturn in dealmaking activity with European M&A value down 22% year-on-year to EUR 652.2bn. We question whether the outlook of European M&A can still be considered bright or if this slowdown is predicted to continue.
Executives fear the European climate will worsen with nearly half of respondents not considering M&A at all. Furthermore, 73% of respondents expect the level of European M&A activity to decrease or remain the same over the next 12 months. However, while the outlook for M&A is broadly negative, executives expect an upsurge in distressed M&A and restructurings arising from deteriorating economic conditions in the coming year. Respondents almost unanimously (95%) expect distressed M&A to rise, with 94% believing that restructurings will increase in number.
Key findings from our research include:
- M&A appetite weakens. 45% of respondents are not considering M&A, compared to only 28% last year. Only 27% of respondents to this year’s survey expect the level of M&A activity in Europe to increase over the next 12 months, and just 1% expect it to increase significantly. Even those that are open to deals have adopted a more defensive mindset, with a slant towards divestments and bolt-ons rather than transformative deals.
- Financing conditions to tighten. 72% of respondents expect financing conditions to become more difficult in the coming year, even though, at the moment, interest rates are low and finance is readily available. This contrasts sharply with last year’s survey, in which 47% predicted financing conditions would get easier in the coming year. Most respondents (53%) expect that they will have to finance deals from their own balance sheets.
- Distressed M&A and restructuring to rise. 95% of respondents said they expected distressed M&A to rise, including 64% who said they expected it to rise significantly. 94% of respondents said they thought restructurings would increase in number. The consumer sector has already seen an increase in distressed deal flow, which could spill over into other sectors if growth continues to stall and trade spats escalate.
Our features in this year’s report include articles on how “European tech M&A has a strong future ahead” and, of particular interest considering the current political climate, an infographic which considers the link between “Brexit and UK M&A activity”.
We hope you find the European M&A Outlook interesting. Our annual CMS European M&A Study will be published in spring 2020 when we will report back on how this market has impacted M&A transaction terms and conditions.