Fear of merger and acquisition market collapse due to Covid-19 proves largely unfounded

Results of the M&A Monitor 2021

Gianni Spolverato

By Gianni Spolverato

Doctoral Researcher, Accounting & Finance

Mathieu Luypaert

By Mathieu Luypaert

Professor of Corporate Finance

27 April 2021

Only one in three M&A experts surveyed noticed a decrease of more than 20% in the number of deals in 2020. Furthermore, the average acquisition price across all deal categories remained more or less stable. Smaller transactions of less than €5 million did take a hit: there were fewer deals, and acquisition prices were lower. Moreover, the uncertain economic situation led to deals taking longer to conclude, and there was an increase in the use of deferred payment mechanisms. For 2021, the experts predict that the market will recover to its pre-coronavirus level, especially when it comes to private equity transactions.


These are the main conclusions of the eighth edition of the M&A Monitor, an annual survey of some 170 Belgian merger and acquisition specialists, including corporate finance advisors, private equity investors, brokers, bankers and lawyers. The survey enquires into their experiences with the deals they were involved in in 2020 and asks about their expectations for 2021. The research was conducted by Professor Mathieu Luypaert and researcher Gianni Spolverato of the Centre for Mergers, Acquisitions & Buyouts at Vlerick Business School, in partnership with Bank J.Van Breda & CoBDO and Sowalfin Transmission.

No total market collapse

The global M&A market declined by 50% in the first half of 2020 as a result of the Covid-19 pandemic. After the summer, however, a relaxation of the coronavirus measures led to a rapid restoration of confidence.

The Belgian market developed along similar lines, says Mathieu Luypaert, Professor of Corporate Finance at Vlerick Business School: "The upturn in autumn 2020 compensated for the standstill in the spring, so the overall damage was limited. Although almost 70% of respondents noted a general decline in M&A activity, only one in three of the experts questioned reported a decline of more than 20%. That is far less disastrous than expected, given that 75% of them predicted a drop of more than 20% in the previous Monitor in 2020. However, we need to add a proviso, given that the acquisitions market is mainly only healthy for medium and large companies. When it comes to smaller deals of less than €1 million, almost 50% of respondents saw a decrease of more than 20%."

Valuation virtually stable

In 2020, for acquisitions of companies across all size categories, an average of 6.4 times the EBITDA value (i.e. operational cash flow) was paid: that is a minimal decrease compared to 2019 (6.5). When we look at the size of the deals, however, we do see differences.

  • The smaller deals (below €5 million) have been hardest hit once again, with the multiple dropping from 5.4 in 2019 to 5 in 2020; for micro-deals under €1 million, the multiple is now only 4.2. 
  • Even in the medium category (between €5 and €20 million) the multiple paid was on average 0.6 times lower in 2020 than in 2019. 
  • Larger deals (of more than €20 million) were hardly affected; in fact, there was even a slight increase in the multiple from 8.3 to 8.5. 
  • The highest prices can be found in technology, pharmaceuticals and healthcare, which are all sectors that flourished during the pandemic. Cyclical sectors such as hospitality and tourism witnessed a sharp drop in prices.

Deferred payment and longer deal process

Increased uncertainty about the value and potential profitability of the acquired company led to a strong increase in the use of earn-outs (i.e. a variable deferred amount depending on future business performance) from 26% in 2018 to 36% in 2020. The use of vendor loans – a fixed deferred amount spread over several years – also rose, increasing from 36% to 43%.

Mathieu Luypaert: “We also see that a slightly greater contribution of buyers’ own equity was needed to finance a deal in 2020: that amount rose from 31% to 34%. That was probably because banks adopted a more conservative stance. It also took significantly longer to complete a deal in 2020. More than 50% of respondents indicated that they needed an average of more than six months (compared to 37% in 2019). Company visits were often impossible due to the coronavirus and buyers were also more cautious and thorough in their preliminary financial research.”

Diversification more significant as a motive for acquisition

Scaling up and growth are still the main motives for taking over a business among both strategic buyers and private equity players. However, the use of M&A to increase diversification in the business portfolio is gaining considerable ground.

Mathieu Luypaert: “Because consolidation is making it increasingly difficult to find high-quality targets within their own sector, buyers are considering other opportunities. Spreading the risk also plays a role, to avoid having all one’s eggs in the same basket in times of crisis.”

Owner-manager often still plays an active role after the sale

Since about 70% of the transactions in Belgium are initiated by the seller, the survey also investigated the underlying motives of the exiting party.

Mathieu Luypaert: “Because there is often no immediate successor, the owner-manager’s pension is the primary reason for the sale. The second reason is that the seller hopes to increase the business potential under a new owner. Finally, there is the trend towards sector consolidation. With the motto ‘eat or be eaten’, you either take the acquisitions route yourself or you decide to sell.”

Another striking point is that 55% of the selling owner-managers continue to play an active role in the company even after the sale. Mathieu Luypaert continues: “In private equity transactions in particular, there is often a shortage of specific knowledge of the industry. That knowledge, a familiar face and the seller’s network can come in useful there.”

Optimism about the future

In general, the respondents expect the Belgian M&A market to recover in 2021 to something approaching its pre-coronavirus level. There is optimism about private equity transactions in particular: 71% expect the number of deals in 2021 to increase, given that these players have built up large volumes of cash in the past year. When it comes to acquisition prices, the multiples are expected to remain stable in 2021 as well, or even increase slightly in the medium and large deal categories. However, companies in sectors hit hard by Covid-19 will have a hard time finding a buyer.

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Mathieu Luypaert

Mathieu Luypaert

Professor Corporate Finance