8 Finance Monthly. The Monthly Round-Up DEALMAKING EXPECTATIONS MIXED AMIDST ECONOMIC UNCERTAINTY, BUT PRIVATE EQUITY NOTABLY BULLISH 43% of dealmakers expect the level of European M&A activity to drop in the next 12 months, though a sizable minority (35%) are forecasting an increase, with those working in private equity notably more optimistic, according to global law firm CMS’ 2024 European M&A Outlook published today in association with financial data firm Mergermarket. This stands in stark contrast to last year’s predictions when 73% forecasted an increase in M&A activity. The landscape of European M&A activity in 2023 has been marked by a confluence of factors, including higher inflation, rising interest rates and an uncertain economic outlook. These challenges resulted in a 47% decrease in deal value in the first half of 2023 compared to the previous year (falling from €596 billion to €316 billion), although transaction volumes experienced only moderate declines resulting in a 12% drop from 2022 (falling from 8,635 to 7,608 deals). Overall, the M&A environment for this year is characterised by a prevalence of smaller transactions – a departure from the trend observed in 2021 and 2022. M&A EXPECTATIONS HAVE MODERATED AND DIVERGED Against an increasingly challenging macroeconomic background, just 35% of dealmakers expect the level of European M&A activity over the next year to rise, down from 73% this time last year, whilst 43% are anticipating a fall. A divergence has emerged, with private equity dealmakers notably more optimistic than their corporate counterparts. Just 24% of private equity respondents expect European M&A to fall, compared to 49% of corporates surveyed. DECREASED RISK APPETITE The report states that a key contributor to this shift is the decreased risk appetite amongst acquirers, which has been further exacerbated by heightened financing costs and cautious lending practices. The aftermath of bank collapses both in the United States and Europe in early 2023 has introduced an additional layer of apprehension amongst market players. In response to persistent inflation, interest rates have undergone multiple increases across Europe, the US and the UK. Most notably, 48% of dealmakers say that inflation and interest rate pressures will be the biggest obstacles to dealmaking over the next 12 months. However, a downward trend in inflation since the beginning of the year has alleviated concerns about a potential regional recession. Louise Wallace, Global Head of the CMS Corporate/M&A Group, said: “After heady post-pandemic activity, European M&A has started to feel the effects of a changed macroeconomic environment. In 2021 and even in 2022, as Russia’s full-scale invasion of Ukraine last year pushed inflation to levels not seen in decades, deal volumes still broke records and aggregate value figures remained higher than before the pandemic. However, we are now seeing M&A activity across Europe starting to reflect the more challenging macroeconomic backdrop.” Nevertheless, the European Commission’s recent upgrade of the European Union’s GDP projections, forecasting 1% growth for 2023 and 1.7% for 2024, provides a glimmer of optimism in an otherwise uncertain economic climate. Whilst projections for M&A activity over the next year remain mixed, with private equity firms showing more optimism than corporate counterparts, a significant proportion of industry professionals anticipate active participation in the M&A market. This suggests a healthy volume of activity in the near term. Notably, as valuations stabilise throughout 2023, the stage appears set for increased agreement between buyers and sellers in the medium term. ESG SCRUTINY WILL CREATE NEW DEAL OPPORTUNITIES 64% of dealmakers believe that ESG and climate change-related regula-
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