When the war in Ukraine started, the market was booming. Every crisis brings opportunities…

The back-to-school period is a good time to take stock of the past year and look ahead to the current one. Rarely has this exercise been so contrasting between the current economic climate and that of last year. And the same goes for the mergers and acquisitions (M&A) market.

Indeed, the mood is particularly gloomy in the context of a multi-faceted economic crisis: unprecedented geopolitical tensions, commodity shortages, skyrocketing inflation, stock markets in free fall…

However, when the war in Ukraine began, the mergers and acquisitions market was booming. With more than 5,000 billion euros of investments worldwide, 2021 shattered previous records. Competition among acquirers increased, especially for larger deals, with the rise of strategic acquirers, family investors and private equity funds.

In Belgium too, most divestment investors recorded an excellent 2021 year and the pace continued in 2022.

New trends

So should we fear a general economic crisis? To what extent will these factors slow down acquisition financing and end the boom of recent months?

Remember that economic activity came to a halt two years ago because of Covid. The prevailing discourse was as pessimistic as it is now, but for different reasons. This crisis ended up affecting certain sectors (hospitality, events, etc.) without ruining the whole economy, especially thanks to government interventions.

These various crises, however worrying, reveal new trends in society that should give us hope. The end of Russian gas supplies is forcing Europeans to decarbonise the economy faster, which our planet so desperately needs. The scarcity of raw materials, rising transport costs and severe restrictions in China are pushing Western countries to relocate their production facilities.

As for the M&A sector, rising interest rates and uncertainty about future performance are certainly major challenges, as access to financing is becoming more difficult. However, the use of supplier credit and earn-outs (variable and deferred price) can help solve this problem. As for valuations, the current crisis will undoubtedly allow a return to more reasonable multiples (*). On the other hand, the reasons for selling (manager’s retirement, desire for change…) have not disappeared (**), nor have the huge reserves of available liquidity.

Be patient…

Our economy is mainly driven by SMEs that have proven their resilience and agility. Our governments and central banks are taking measures to curb the current crisis, but they have not yet had any effect. So we need to be patient.

Without belittling the problems, let us beware of excessive pessimism. Let us use our analytical skills to understand how best to respond to the challenges ahead and try to adapt by focusing our activities on the future and sustainability. Every crisis offers opportunities, especially in corporate sales.

(*) EbitDA multiples in some sectors, and especially for large operations, have increased in recent years.

(**) As shown in the Sowalfin study Retour sur 2021 et perspectives 2022, available on the internet.

Article by our expert Tanguy della Faille