European distressed M&A: Activity ahead

This article is an extract from the European M&A Outlook 2025. For the full report, please fill in the form here.

Europe’s debt maturity wall and challenging macro conditions are likely to continue to drive distressed M&A, with deals from the sale of non-core assets and consolidation in oversaturated markets coming to the fore.

In macroeconomic terms, we have seen a mixed picture in Europe. Some countries are technically in recession, but many are not. Experience has shown that economically- uncertain times result in an increase in insolvencies, which leads to an increased number of distressed M&A transactions.

It is unsurprising, therefore, that the effects of the ongoing polycrisis – including, to name a few factors, increased raw material and energy prices, regulatory requirements leading to changes in business models, a shortage of skilled workers and uncertain customer demand – are leading to an increase in insolvencies. This has also been evidenced by Eurostat, which registered an upward trend from Q2 2022 until the end of 2023, reaching a new peak in Q4 2023 for insolvencies filed in the EU. Although the number of insolvency declarations decreased slightly in Q1 2024, the figures remained above pre-pandemic levels. As such, the vast amount of European maturing debt will be forced over the next 12 months to refinance against very different financial metrics compared to when the deals were first written.

This has been generating some stressed and distressed M&A, and we expect it to drive more activity in H2 2024 and 2025, fuelled by increasing confidence in the M&A market more generally. This aligns with the findings of this year’s survey, in which more than a third of respondents expect non- core asset sales from larger companies to be the biggest sell-side driver of European M&A activity over the next 12 months.

Corporate restructuring trends 

The impact of a challenged European macroeconomic situation should not be overstated, however. EU policy has led to a plethora of new debtor-friendly restructuring tools that facilitate restructuring of debt, therefore taking a bit of pressure off reshaping the corporate structure and asset sales. The main new European tools are the UK Restructuring Plan, the Dutch WHOA and the German StaRUG. In the UK there are also other CIGA reforms, such as the Part A1 moratorium, which is providing some utility to debtors needing some breathing space.

Current corporate restructuring activity is focused on right-sizing balance sheets, improving liquidity and preparing for upcoming debt maturity/refinancing. We are seeing this implemented by debtors due to their own volition, but also stemming from pressure by lender groups. While legislation and policy have provided some new debtor-friendly tools, another key measure to remedy concerns and achieve such targets is the sale of non-core assets.

Increased enforcement activity is forcing some asset sales, and it is not only coming from lenders. Several government agencies are collecting deferred taxes – in the UK, for instance, we are seeing record levels of HMRC winding-up petitions, with similar trends evident in other countries.

Such focus is leading to more accelerated M&A in a distressed and stressed context. Furthermore, multinational corporations are retreating to key geographies, therefore leading to sales and wind-downs, albeit not necessarily in a distressed context.