Global M&A markets have endured a difficult year, and European dealmaking has been no exception. Rising interest rates, high energy costs and geopolitical uncertainty have been just a few of the myriad challenges facing corporate and private equity dealmakers in recent months. The full report drills down into the details of last year’s M&A markets and explores the outlook for 2023.
Through the rest of 2023 and into 2024, several structural and strategic drivers will be at play in the European M&A market:
Tougher macroeconomic conditions are pushing companies to reconfigure operations, divest unwanted assets, raise capital and focus on core business lines. An uptick in carve-outs will offer private equity dealmakers a welcome pipeline of deal prospects, as will ongoing public-to-private deals, especially in the UK, where US private equity firms have been particularly active during the last 12-18 months, taking advantage of a strong dollar to acquire listed UK assets at attractive valuations.
Digital transformation is another cornerstone of long-term dealmaker strategies, as firms use tech to catapult operations into the digital age. Tech deals have been and will continue to be a key driver of M&A in Europe – and indicators already show abundant deal opportunities in this industry for dealmakers ready to act.
Dealmakers are also turning to M&A to accelerate decarbonisation and make progress towards net-zero carbon emissions targets.
M&A will be one of the key funnels for capital to flow into renewables and energy transition projects at the required levels. Wider environmental, social and governance (ESG) concerns are also spreading into sectors other than energy, as investors and consumers become more socially and environmentally conscious.
Globally, private market dealmakers are also sitting on a record US$3.7tn of dry powder, of which US$1.1tn is sitting in buyout funds. Around three quarters of this buyout dry powder was raised within the last three years, so while buyout firms still have time to put money to work, they will have to start deploying capital war chests before too long.
Even in the face of worldwide uncertainty, European assets remain a magnet for foreign investors. Amid economic fluctuations, the region’s vast consumer market, skilled workforce, and robust mid-market continue to entice overseas buyers. North America takes the lead in inbound mid-market M&A, pursuing European value whilst Asia Pacific investors, mindful of near-term risks, still consider Europe a promising destination for investments once conditions stabilize.William Chapman, Partner