European Dealmakers eager despite challenging market conditions

European M&A activity will increase over the next year, despite a far more difficult deal environment. 73% of dealmakers expect this, according to the tenth edition of the 'European M&A Outlook' by international law firm CMS and Mergermarket. Last year, only 53% held this opinion.

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

21% of dealmakers cite undervalued targets as the biggest buy-side driver of activity, while 26% view distressed situations as the biggest driver on the sell-side.

Louise Wallace, Head of the CMS Corporate/M&A Group, said: 

"Despite ongoing geopolitical uncertainty, rising inflation and interest rates, 2022 has seen M&A largely above or in line with pre-pandemic levels with of a number of large M&A deals, particularly in the Industrials, Technology, Real Estate and Consumer sectors. Financial sponsors remain very active and corporate executives continue to discuss possible deals, and all are sending clear and strong signals that deal-making activity is likely to continue at a high level in the coming months."

Louise Wallace

No less than 87% of respondents say they expect financing market conditions to be tougher than last year, including 45% who expect them to be significantly more challenging. This is due to seller/buyer valuation gaps, which are expected to be the biggest obstacle to M&A as sellers struggle to let go of previous all-time high valuations and buyers wish to acquire repriced assets.

Roman Tarlavski, Partner and Head of the Corporate/M&A Group at CMS in Amsterdam, said: 

"This shift has been noticeable since the beginning of the year and has only increased over the past months. We have seen a number of transactions abort due to this price gap."

Roman Tarlavski

ESG

Another key focus for respondents is the rise of environmental, social and governance (ESG) factors. As many as 90% of respondents anticipate ESG coming under closer focus in their dealmaking over the next three years, compared with 72% in last year’s survey. The proportion of respondents expecting ESG scrutiny to significantly increase has nearly doubled to 48% from 26% 12 months ago.

Methodology

In the second quarter of 2022, Mergermarket surveyed senior executives from 240 corporates and 90 PE firms based in Europe, in the Americas and Asia-Pacific 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 the Asia-Pacific regions. 70% of all respondents have been involved in an M&A transaction over the past two years and 88% plan to undertake an M&A transaction in the coming year. All responses are anonymous, and results are presented in aggregate.

View the full report here.