CMS European M&A Outlook 2019

Europe

As GDP growth in Europe moderated from 2.5% in 2017 to 2.2% in 2018, and from 2.4% to 1.8% over the same period in the Eurozone, respondents to our survey have taken a more cautious stance on the prospects for M&A growth.

Weak economic indicators, geopolitical headwinds, uncertainty surrounding Brexit and growing protectionism in global trade have contributed to a shift in sentiment in the M&A community and have taken a toll on deal activity. European M&A value over the last 12 months (Q3 2018 to Q2 2019) is down 22% year-on-year to EUR 652.2bn.

Unsurprisingly, this has contributed to a less optimistic mood among survey respondents than was the case a year ago.

Key findings from our research include:

  • M&A appetite weakens

    45% of respondents are not considering M&A, compared to only 28% last year. Only 27% of respondents to this year’s survey expect the level of M&A activity in Europe to increase over the next 12 months, and just 1% expect it to increase significantly. Even those that are open to deals have adopted a more defensive mindset, with a slant towards pestments and bolt-ons rather than transformative deals.

  • Financing conditions to tighten

    72% of respondents expect financing conditions to become more difficult in the coming year, even though, at the moment, interest rates are low and finance is readily available. This contrasts sharply with last year’s survey, in which 47% predicted financing conditions would get easier in the coming year. Most respondents (53%) expect that they will have to finance deals from their own balance sheets. Private equity is also expected to become an increasingly important source of capital during the year ahead.

  • Distressed M&A and restructuring to rise

    95% of respondents said they expected distressed M&A to rise, including 64% who said they expected it to rise significantly. 94% of respondents said they thought restructurings would increase in number. The consumer sector has already seen an increase in distressed deal flow, which could spill over into other sectors if growth continues to stall and trade spats escalate.