The European M&A-market maintained a steady pace in 2022 despite economic headwinds, according to the latest annual European M&A study by global law firm CMS.
Record number of deals
The CMS European M&A Study contains a multi-year analysis of key legal provisions within M&A agreements. It is the most comprehensive of its kind and is based on a proprietary database comprising more than 5,000 deals. This 15th edition adds over 500 deals that CMS advised on in Europe in 2022. This is a record number of deals for one year despite a more difficult macroeconomic environment caused by rising inflation and interest rates, slowing growth and increased geopolitical tension.
Main driver
The study reveals that the primary deal driver for transactions continues to be entry into new markets (39%), despite a slight drop from 43% in 2021. There was also a decline in deals involving the acquisition of a competitor from 32% in 2021 to 28% in 2022 – most likely reflecting a step back from acquisitions seeking a post-pandemic consolidation of revenues and costs.
Louise Wallace, Head of the CMS Corporate/M&A Group, said:
"Despite the economic and political headwinds, the Dutch M&A market has remained robust in 2022. We are confident that activity will pick up in 2023 as financial sponsors deploy capital that is abundantly available, investors pursue corporate change and sellers and buyers bridge the pricing gap."
Louise Wallace
Roman Tarlavski, Partner Corporate/M&A at CMS in Amsterdam, added:
“The challenging M&A landscape last year has not resulted in considerable movement from the deal rhythm found in more benign years. We remain cautiously optimistic about deal activity in Europe in 2023 – notwithstanding that many of the adverse economic and political factors that have historically impacted on M&A growth are still evident. The fact that our team has still delivered a record number of M&A transactions reflects the strength of our corporate offering throughout Europe.”
Roman Tarlvaski
Key findings from this year's research:
- MAC clauses still barely utilised
MAC clauses are still not utilised often in European deals with only 13% of deals having them. This is in stark contrast to the US, where they were used in 98% of the deals.
- Earn-outs still on the rise
Earn-outs have now been applied in 27% of deals as compared to 14% in 2010 when CMS first analysed this. This is coupled with a rise in the use of EBIT or EBITDA as the relevant measure for the earn-out applying in 54% of such transactions.
- Big increase in locked box transactions
There was a strong increase in the application of locked box arrangements (62% in 2022 compared with 51% in 2020). Private Equity deals also show a marked preference (85%) for locked box structures.
- Warranty & Indemnity (W&I) insurance more popular
The popularity of W&I insurance has grown significantly over the last five years to 32% in 2022.
- ESG more important
ESG factors in M&A are becoming more relevant and important due to pressure to uphold higher governance standards. It also seems likely that dealmakers want to capitalise on attractive ESG value creation opportunities. However, ESG aspects are only just beginning to appear specifically as part of the due diligence process (33% of deals) and in transaction documents (45%).
Download the full report here: CMS European M&A Study 2023
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