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The Road to Recovery: European M&A Outlook 2022

14/09/2021

Private equity to capitalise on opportunities presented by COVID-19

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 global law firm CMS in association with Mergermarket, 71% of dealmakers agree. Over half (53%) of them expect an increase in M&A deals across the board over the coming twelve months.

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.

Louise Wallace, (Head of the CMS Corporate/M&A Group) commented: “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.”

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.

Roman Tarlavski (Partner and Head of the Corporate/M&A Group at CMS in Amsterdam): "We have seen that these predictions didn't come true. The market has proven itself stable thanks to large capital reserves, low interest rates, the willingness of banks to provide money for transactions and the many possibilities the pandemic has presented in certain sectors. The pandemic may not yet be over, but under the current circumstances, the effective vaccination programme will continue to accelerate M&A activities."

Low values and limited

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 twelve 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
(Environmental, Social & Governance) 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.

Methodology

In Q2 2021, Mergermarket surveyed senior executives from 240 corporates and 90 PE 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

This year we have added a number of new features to our survey:

  • An editorial feature on Earn-Outs during the COVID-19 pandemic
  • An editorial feature on the CEE hotel investment scene
  • ESG considerations in M&A deals for the year ahead
  • Brexit and FDI considerations