The mergers and acquisitions market is now taking a breather. According to figures from Refinitiv, between 1 January and 10 June 2022 in France, corporate sales and disposals fell by 42% to $37.5 billion. Experts at AURIS Finance, an M&A consultancy, explain.
After an extraordinary 2021, M&A experts anticipated a less dynamic 2022. However, the levels achieved are now well below expectations. In six months, the French market has shrunk by 42%. Internationally, mergers and acquisitions involving France have fallen by 23% since the start of the year, while the value of deals involving a French target has fallen by 53% over one year. In Germany, transactions over the same period fell by 49% to $29.4 billion. Globally, the market contracted by 20% in the first six months of the year. Finally, the US market is also taking a break, with transactions down 27% over the period to $889.3 billion.
More precarious financing conditions
How can we explain this slowdown? There are a number of factors at play. First, the economic climate has led to a significant tightening of financing conditions. Rising interest rates, inflation, volatile financial markets, and economic uncertainties have made funds and lenders more cautious. Liquidity is less readily available than in the post-Covid period and buyer interest is waning.
Cautious, wait-and-see buyers
As a result, transactions are taking longer to materialise. Discussions about prices are now commonplace. Valuations – which used to be as high as 20 times EBITDA – are coming down. Buyers are no longer reluctant to walk away from a deal because they find the price inadequate. So this is a time for caution. Some transactions are being postponed, while others are struggling to find a buyer at the asking price. Following the outbreak of war in Ukraine, Italian and German banks UniCredit and Commerzbank abandoned their merger plans. Similarly, French debt collection specialist iQera is struggling to attract the level of bids expected by funds. Sellers expect the transaction to be valued at between €1 billion and €1.5 billion, or around eight times the group’s published 2021 Ebitda.
Some sectors are weathering the storm
However, not all sectors are affected in the same way. Some sectors are holding up well and remain highly valued. While technology stocks, which benefited greatly from the Covid period, are now taking a break, other assets considered to be more resilient are particularly sought-after. This is especially true for companies specialising in cloud, data, and cybersecurity. For such companies, the number of potential buyers continues to far outnumber those looking to sell.
Get the support you need
Inflation, geopolitical crises, financial market tensions, lack of liquidity – the difficulties are real today and have a direct impact on M&A transactions. In these complex times, the experts at AURIS Finance are at your side. Their sector expertise enables them to support you throughout the entire buyout process, from target identification and valuation to post-acquisition strategy. They also understand the specifics of each market and are able to assist sellers with their sale plans.
