In the second quarter of 2017, Mergermarket surveyed senior executives from 170 corporates and 60 PE firms based in Europe about their expectations for the European M&A market in the year 2018. All respondents have been involved in an M&A transaction over the past two years.

The results were presented in the 5th edition of the CMS European M&A Outlook released in the last quarter 2017.

Key findings

M&A set to rise

Over the 66% of respondents are expecting M&A in Europe to increase 2018, with the 90% suggesting that non-European buyers will be active acquirers across the continent.

Transformational deals on the cards

The 40% of corporates and nearly 50% of PE firms are seeking out large, transformational deals over 2018 saying that technology and IP are among the top two aspects under consideration when acquiring.

Favourable financing conditions

European companies now benefit from a range of financing options for their deals, from newly-emerging private credit funds that can provide an alternative or addition to bank finance, to more traditional private equity.


Brexit negotiations and M&A

  • “1) A“No deal“ scenary will increase the need for corporate restructuring across Europe. A further sharp fall in sterling will create opportunities to find value in UK assets or 2) A cooperative resolution of the negotiations will improve the growth outlook across Europe, boosting business confidence and the appetite to seek growth through acquisitions.”
  • “When fog clouds the outlook, some will run for cover, but the more people’s views on the future differ, the greater are the opportunities for trade. The risk-averse owner of an asset will be willing to sell to someone more daring and willing to see the outcome as bright. A price that satisfies both sides can be easier to find.”

Europe rising tide

  • 67% of respondents expect M&A in Europe to increase. 90% expect an increase in non-European acquisitions of European companies; 64% say that North American companies will be the most active inbound acquirers in Europe
  • “Buyers from different markets based in the APAC and North America will continue acquiring companies in Europe because prices are low and the opportunities to gain market and technology are high,”
  • “Another factor driving activity is a desire for companies to gain access to growth in the European market. “Cash-rich companies are turning to markets in Europe to reduce the risks faced in their existing markets.”

Digital innovation drives M&A

  • Acqui-hiring. One deal driver in M&A is digitization. Corporations look for capture innovations and new technologies acquiring companies digital native to respond challenges that this area impose to their business models.
  • Respondents believe technology, media and telecommunications (TMT) will be the most active sector for M&A (37%), followed by consumer (19%) and energy, mining and utilities (16%). E-commerce is the leader of the TMT pack, with deal value rising from €2.4bn in H1 2016 to €3.4bn in the same period for 2017.
  • European e-commerce revenues increased by 15% with growth expected to remain at similar levels for 2018. The fragmented nature of the European e-commerce space and the uneven penetration of internet-based purchases across the region make the sector ripe for consolidation and future growth.

Dealmaker cash in

  • 54% believe that cash-rich corporates will be behind acquisitions on the buy side, followed by consolidation plays, cited by 51%, while just 12% believe M&A will be driven by the relative weakness of European currencies. For sellers, growth is at the top of the agenda. Over half (51%) say that capital raising for expansion in faster growing areas is set to be the greatest driver of sellside M&A activity. This is supported by the second biggest driver identified by respondents, non-core sales of larger companies.

Spotlight on automotive and the Autonomous future

  • The number of transactions in the automotive sector increased by 74% in 2016 compared with 2015. On the one hand, this increase is based on the fact that traditional car manufacturers and suppliers are purchasing digital know-how and, on the other, that traditional business divisions are being sold off as the automotive market goes digital.
  • These profound structural changes mean leading car manufacturers need to fundamentally shift their business focus. Cars will no longer be sold based on driving features but due to their compatibility with other devices (i.e Internet of Things), their functionality and amenities.
  • Car manufacturers are responding either by producing new technologies and giving them a competitive advantage, or by partnering or acquiring technology companies so that they can incorporate their expertise into their business.
  • According to Mergermarket data, the top sector by both value and volume in H1 2017 was industrials and chemicals, with 667 deals worth €76.6bn. The automotive industry has emerged as the subsector to watch.
  • Carmakers and technology companies are becoming increasingly intertwined – demonstrated by Uber and Daimler’s selfdriving car partnership, announced in January 2017. These trends are likely to drive further M&A in the sector, with automotive companies increasingly looking to acquire start-ups with promising technologies.

Spotlight on Consumer goods

  • The sector was the second largest by value for European M&A activity in the first half of 2017, according to Mergermarket data, notching up a total deal value of €75.3bn.


Deal dynamics

  • 66% of respondents are currently considering M&A – either acquisitions, divestments or both; 68% of corporates cite the need to grow in new geographies and customer bases as their key driver for acquisitions; 73% of corporates consider technology/IP among their top two considerations.
  • European valuations remain low compared to the peak of 2015. Recent economic volatility also appears to have convinced many buyers that diversification and increased efficiency through significant scale is an important strategic goal. Such transformational deals are boosting deal values across Europe.
  • Rising automation of tasks and digitisation reducing the cost of many business and production processes. According to 86% of PE firms and 73% of corporates, technology and IP acquisition is one of the two most important aspects for buyers when looking at targets.
  • Distribution channels are another key priority for buyers; In some cases there is a need to develop sales channels and expand into different markets.
  • Despite record levels of dry powder, PE funds are increasingly doing deals alongside other PE houses. This reflects the trend towards larger deal sizes, as PE firms club together to avoid concentration risk in their portfolio – most have restrictions on the percentage of the fund that can be invested in a single asset. The role of family offices has become increasingly prominent in the European PE scene. Over half (51%) of respondents have undertaken an equity coinvestment with a family office over the past 12 months, and 44% expect to do so over 2018.
  • Volatility in global capital markets will have the greatest negative impact on the performance of European businesses over the coming year.
  • 43% believe that antitrust is the most challenging aspect also Financial regulations are stringent and increase legal and compliance costs, while individual country data protection laws are not sufficiently developed.

Geographical round up

  • UK & Ireland continue to lead European M&A activity in terms of value and volume. Dealmakers will increasingly use Ireland as a base from which to gain access to the European market.
  • The Nordics achieved the second highest deal volume in the region.
  • German M&A has almost doubled in value compared to last year, powered by activity within the industrials and chemicals sector within the German market “not only are returns strong but demand is growing.“


Volume % Value €bn %
UK & Ireland 721 -12 94.472 51
Nordics 525 -2 45.779 28
Germany 399 -12 66.050 47
Italy 244 -12 38.142 21
Benelux 257 -19 22.671 10
Austria & Switzerland 128 -20 39.127 -29
Rusia & Ukrania 86 3 7.385 68
Iberia 219 -9 52.945 76
SEE 58 15 7.612 104
CEE 172 -34 5.684 -6

Percentage changes compare figures for H1 2017 with the same period of the previous year

Sovereign states that are most frequently included in the SEE region are, in alphabetical order: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Kosovo, Macedonia, Montenegro, Romania, Serbia, and Slovenia

CEE Czech Republic, Hungary, Poland, the Slovak Republic, and the three Baltic States: Estonia, Latvia and Lithuania

The lending landscape

  • 88% of respondents are expecting similar or more favourable financing conditions over the coming year; 89% predict that restructurings will increase; There are many financing options :Interest rates are low and the number of lenders high, making it easy to access capital.”
  • The biggest challenge to financing acquisitions is expected to be company performance, There are still uncertainties in a few major markets, growth rates are slow and some sectors are already bearing the brunt of changes in economic conditions. Stock markets are still very volatile and companies are taking time paying off debts
  • With an abundance of capital at their disposal, it is unsurprising that PE firms are expected to be the most active source of capital over 2018 (stated by 57% of respondents). This is followed by cash reserves, mentioned by 55% of respondents. Alternative forms of debt finance, such as credit funds came in third place, with over a quarter (28%) saying this will provide the most available form of funding, ahead of bank lending (23%).
  • Respondents expect restructuring to feature heavily among transaction types over 2018, with 89% predicting that restructuring deals will increase over 2018. Refinancings also feature high on the dealmaker agenda; According to S&P Global fixed income research, €3.7tn of rated companies’ debt is scheduled to mature between mid-2017 and the end of 2022, which is set to cause a flurry of refinancing activity.

To take away

Look for disruption

There are a number of disruptive forces at play, from global economic and market volatility and technological development to the eventual effects of Brexit across a number of sectors. Take a leaf out of the PE playbook and seek out opportunities in markets that are perhaps undervalued or are undergoing rapid transformation, and target businesses that are set to benefit from the changes.

Focus on core growth areas

These disruptive forces are driving buyers to diversify their exposure to manage volatility. For sellers, this means that their non-core business units may well be highly valued by acquirers that can gain synergies or economies of scale or are willing to invest in unloved assets to develop and improve them.

Take advantage of financing conditions

There is strong competitive tension between the rising numbers of financing options available to European companies. Debt funds and banks are vying to provide credit in many sectors and PE firms have record amounts of dry powder to invest, increasingly seeking buy and build opportunities to achieve businesses of scale.

More details in Changing tides: European M&A Outlook 2017, A study of European M&A activity, September, 2017. CMS in cooperation with Mergermarket