Belgian growth companies display conservative approach to acquisitions

EY and Vlerick Business School have published the first Belgian edition of the M&A Barometer. This shows that Belgian growth companies made fewer acquisitions in 2013 than in any year since 2009. Although over six out of ten companies consider acquisitions useful, only half have dared to take the plunge in the last three years. This conservative attitude distinguishes Belgian acquirers from their counterparts in the rest of Europe.

Lowest level

The figures from the Zephyr database (Bureau Van Dijk) speak for themselves: in 2013 the number of deals announced was down to 392 compared to 501 in the previous year. According to the new M&A Barometer from EY and Vlerick Business School, this represents the lowest level since 2009. This is despite the recovery in the stock markets, the more favorable economic outlook and cheaper debt financing.

European figures from the same Zephyr database reveal that acquisitions in other European countries are on the rise: last year, the number of deals announced rose by more than 2,400 to 22,546.

The M&A Barometer shows the reason behind the disappointing Belgian results:

  • Only half of respondents had made an acquisition in the last three years
  • A 62% majority still believe that acquisitions create value
  • The same percentage (62%) will go ahead and make acquisitions in the next three years
  • Belgian growth companies display a conservative approach to acquisitions: they only proceed with an acquisition once they have the required funding (57% comes from own resources, 23% from bank loans).

Belgian companies adopt a cautious approach

The survey shows that the Belgians are more cautious about the funding of acquisitions than their counterparts in other countries, which can turn into a competitive disadvantage. Companies who finance an acquisition with loans will be able to put in a better bid in the takeover battle”, says Marc Cosaert, Partner EY Transaction Advisory Services.

Most commonly used valuation methods and acquisition structures

Around half of respondents opted for the simplest valuation method, the multiple valuation method, for an acquisition. This is the value placed by the market on companies from the same sector, usually expressed as a multiple of EBITDA or business cash flow. Another, more comprehensive, but also much more complicated valuation method is based on discounted cash flow, or the present value of future cash flow. Over a quarter of respondents preferred this valuation method, probably due to its complexity.

Deals where shares change hands remain most common, although they have declined in popularity in the last few years. Joint ventures and strategic alliances have seen a steady rise. “These structures limit the risk and do not require any cash”, says Mathieu Luypaert, professor of corporate finance at Vlerick Business School.

Cultural differences are often the main pitfall

Thirty percent of respondents think that cultural differences are the main pitfalls for an acquisition, and 54% difficulties with post-acquisition integration. Why do companies go to all this trouble? “A major reason is economies of scale” , maintains Mathieu Luypaert. “That’s why a growth company won’t necessarily take over a direct competitor, but aim for a player in a different market or a different country instead.” Another reason is a quick way to gain a foothold in a foreign market, although companies can sometimes come home empty handed.

Role of intermediaries

Seven out of ten respondents used the services of a consultant for their acquisition, even if only to inspect the accounts and draw up the acquisition agreement. Companies still prefer to take care of the selection and negotiations for acquisitions themselves. “Acquirers would be better to work with an intermediary in this case. For both negotiations and selection of companies for acquisition, an intermediary can provide the necessary emotional distance”, concludes Marc Cosaert.

About the survey

The M&A Barometer is a new initiative of EY and Vlerick Business School. The survey took the form of an online questionnaire completed by 97 Belgian growth companies. 85% have a turnover of more than 10 million euros and 44% more than 50 million. A majority (56%) of respondents are family businesses.

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