At our recent webinar in partnership with FT Live, Dietrich Becker, Allan Bertie, Caroline Rae, and Markus Schiller spoke with Kaye Wiggins about the current state of M&A and what might lie ahead for the sector next year.

This year has been a bit different for M&A than last year. After a record 2021, it’s perhaps no surprise that both M&A deal volumes and values in EMEA fell in the first three quarters of 2022 compared to the same time last year: there were 8,279 deals worth €844.9bn, a 14% drop yoy in terms of deal volume and a 16% decline in deal value (see Deal Drivers: EMEA Q3 2022).

With the continuing challenges of rising inflation and interest rates, geopolitical events, ongoing supply chain issues, and fluctuating exchange rates, what does that mean for M&A prospects next year? 

Stability and scope to cope
Of course, no one has a crystal ball. After all, look at 2020: COVID disruption resulted in a record year for M&A. Can things turn around next year?

Rae emphasizes that it’s difficult to predict how next year will play out, but that there’s scope for more M&A: “I think it's always difficult to predict these things and many times we've gotten it wrong, as things can change dramatically. I think it can be a function of what people have across their desks at the time, what’s in their own pipelines, and whether people are focused on private equity or listed companies and what sector they're in. But what I think is clear is that everyone is cautious at the moment. We need some stability, we need some certainty, particularly around inflation and interest rates. But there's definitely scope for M&A to cope during disruption.”

Becker agrees that stability is key to M&A improving: “It’s a question of knowing what a reasonable expectation is for a market level of interest rates or market level of inflation or market level of other indicators that give people a sense of stability. My expectation is that once we have more stability around that, people are going to be willing to make decisions. I think right now people are sort of sitting there and looking at their projects with the question of when is the right moment to pull the trigger. But, we don't see that many projects being shelved altogether.”

Optimism still abounds
Schiller is more optimistic, as he’s already seeing it in play: “I think now's really the time to be optimistic and to seize opportunities right now. From a strategic review perspective, it's also a chance to right-size your business and redirect your business. Our statistics show that pipelines are building, especially on the buy-side. So, what we're seeing is a lot of market participants actually taking those opportunities and preparing for them.”

Moreover, Schiller says he that this optimism is evident on the Datasite platform. “Despite the drop in deal values and volumes year-on-year at Q3 (see above), we’re seeing a 10% increase in deals launching and preparing on our platforms year-to-date. So, there's a difference between what is being announced and what is boiling and coming onto our platform. However, there is a downshift in deal size, with more mid- and small-cap deals and more competition for the smaller deals, as well.”

Bertie agrees, especially with US$1.68 trillion (according to Preqin) of PE powder to deploy: “When that stability comes back, I think there's a huge amount of private equity demand to deploy capital. But in the time before the leveraged loans come back, I think the corporate acquirers should be looking at taking advantage of a tilted competitive dynamic, where they're not just playing a cost-of-capital game against private equity, but where they have an advantage to win, assuming their balance sheets allow them to make those acquisitions on favorable terms. So, I think it’s more likely that the large-scale leveraged loan market will come back slower than the mid-market, which is typically going to be coming from the credit funds. But I would be optimistic that that's starting to come back in some part of Q1 or maybe late Q1 next year.”