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European M&A Trends 2023

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European M&A Trends 2023
The European market in 2023 continued an overall downward trend in deal volumes that began in the first half of 2022. But there was notable and steady activity on the continent. German-speaking countries, such as Germany, Austria, and Switzerland performed well.
Italy also did better than most. The desire for M&A across Europe is present as usual, but various challenges cast shadows on possible deals. As the struggle continues, it becomes more obvious that companies will need to rely on experienced financial advisory experts, like KP Tech Corporate Finance, to meet regulatory and investor expectations.


The economy has slackened and loans are more difficult to acquire. Companies are examining their portfolios to see where they can take action to relieve the pressure. For example, businesses with variable-rate loans obtained in more optimistic times, may be looking to unload unnecessary portfolio entries. The same is true with those facing the decision whether to refinance. No one wants to refinance at steeper interest rates to support high-risk ventures. During favorable seasons, some companies expanded vertically, others horizontally, but not all the gambles paid off. Now many companies can't afford to keep divisions that aren't showing a satisfactory profit.

Banking Regulations

Even banks are struggling with M&A. Rising interest rates typically benefit banks, increasing their capital. In turn, large banking corporations might use that capital to acquire rivals. But that's not what's happening in Europe. An international banking regulation has curtailed much of the sector's desire for M&A. According to the rule, the bank has to reappraise its newly acquired assets at current market rates. Most of those assets date to a time of lower interest rates. So after reappraisal, they have significantly less value. As a result of the rule, deals that once seemed lucrative are no longer appealing. And that's despite the fact that European banks generally trade below their asset value. An example is the planned acquisition of part of HSBC by a private equity firm announced in 2021. At that time, the ECB rate was zero. However, in spring of 2023, the deal began looking shaky. The interest rate had risen to 3.5%, drastically depreciating HSBC's assets. It meant the private equity firm would need to raise far more capital to complete its purchase. There's strong desire on the part of various parties for banking M&A in Europe. Regulators and investors think consolidation would benefit the economy. There's also political support for defragmenting the industry. But the accounting rule is a major challenge. Companies will need to look carefully for expert advice to successfully locate new sources of capital at reasonable rates.

Private Equity Firms

Private equity firms continue to pursue promising investment opportunities. They're continually on the lookout for enterprises that have lost some of the value but maintain strong earnings potential. But they're becoming more selective. Besides their traditional leveraged deals, private equity firms are making adjustments to their portfolio to better prepare for the future. They are particularly interested in companies using cloud services and businesses that are heavy on computational analytics. There's not the feverish desire to acquire competitors simply to squash rivalry. Companies looking to grow are shopping for businesses that will fill pressing needs. Meanwhile, companies that need to slim down in order to stay relevant are looking to divest themselves of subsidiaries they previously acquired or developed.

Large M&A Transactions

The enterprises in the best position to take advantage of the current market are corporate buyers with deep pockets. Those with plenty of cash of hand can take their time and find companies ripe for takeover. For example, US Pharmaceutical giant Pfizer continued its buying spree. It received unconditional EU antitrust approval in October for a $43 billion acquisition of Seagen. Elsewhere, Switzerland's Glencore had a $31.4 billion bid for Teck Resources in the materials sector. Carrier Global made a deal for the Climate Solutions division of the German company Viessmann. And Bain Capital made a play for SoftwareONE for $3.8 billion.

Mid-Sized Deals

But there aren't enough corporate giants with acquisition aspirations to keep making major splashes in the business news. Instead, the vast majority of M&A news is dominated by mid-sized business deals. Smaller companies also generally have fewer regulatory headaches than their out-sized contemporaries. With large mergers there's always the fear of eliminating too much competition. Similarly, there's the concern that the resultant company will have undue market influence. Smaller businesses can often keep their mergers and acquisitions in the business section of the news. Their deals can typically stay outside of political and ethical debates.

Artificial Intelligence

Companies that are most appealing to buyers are those with niche capabilities. A prime example is artificial intelligence. Companies with a good foothold in AI are attractive and should remain so. The technology is only expected to become more and more part of people's everyday lives. Businesses don't want to have to start from scratch by building their own AI divisions. That could set them back by years. It's far easier to stay in step with the times by purchasing a turn-key AI operation. The attention to AI is in line with the fact that the most active M&A sector in Europe and globally was technology during the first half of the year. It accounted for 26% of deals worldwide.

Environmental, Social, and Governance Issues

Also on the buyers' list are companies that can help them meet climate initiative goals, such as reducing carbon emissions. For example, companies are looking for ways to meet their agreements for net zero emissions. Less desirable would be takeover opportunities where the target is years behind in climate-friendly technology. In addition to climate concerns, social and governance issues are also playing more of a role in M&A talks. A clear example is the Russian invasion of Ukraine. There was clear pressure for companies to divest themselves of businesses deemed complicit in the attack. Investors are more vocal these days regarding where they are morally comfortable placing their money. Companies that are responsive to investors' ethics are less likely to find themselves scrambling to get rid of problematic assets when a political crisis strikes.
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