Despite a decline in the international mergers and acquisitions market, the Belgian market is holding up surprisingly well in 2022. This is mainly due to the smaller and strategic transactions. The average transaction price across all size segments remains at an absolute record high. However, the persistent economic uncertainty is leading to an increased use of deferred payments. The M&A market has become far more professional over the past 10 years, with growth rather than savings as the main motive. A shift from a reactive to a proactive market is expected in the coming years, with the search for targets increasingly crossing national borders. Finally, environmental factors are gaining in importance as a competitive advantage in transactions.
These are the main conclusions of the tenth edition of the M&A Monitor, an annual survey of 155 Belgian merger and acquisition specialists including corporate finance advisers, private equity investors, strategic advisers, bankers and lawyers. They represent all industries and transaction sizes. The survey asks about their experiences of the deals they were involved in during 2022 on the one hand, and their expectations for 2023 on the other. As this was the tenth edition, they were also asked about the evolution over 10 years.
The survey was conducted by Professor Mathieu Luypaert and researchers Gianni Spolverato and Tom Floru of the Centre for Mergers, Acquisitions & Buyouts at Vlerick Business School in collaboration with Bank Van Breda, BDO, Van Olmen & Wynant and Wallonie Entreprendre.
Compared with the record year 2021 – in which almost 6 trillion dollars was spent on acquisitions worldwide – 2022 experienced a significant drop. However, despite this decrease of 2 trillion euros, the global mergers and acquisitions market remains at the average level of the past 10 years.
The picture for the Belgian mergers and acquisitions market in 2022 is not as clear and varies greatly depending on the type of transaction. For medium to large transactions, 50% of the respondents indicate that the market has shrunk. However, when it comes to smaller transactions with a value of less than 5 million euros, only 1 in 3 can see a decrease. When we look at the type of purchaser, the acquisitions by strategic buyers are clearly much more stable than the private equity transactions. 50% noted a sharp decline in financial transactions, while only 1 in 3 respondents experienced the same for strategic transactions.
Mathieu Luypaert, Professor of Corporate Finance at Vlerick Business School:
“The first half of 2022 was fairly stable but interest rates suddenly started to rise from the summer onwards, which mainly had a negative impact on the very large transactions. However, Belgium is and remains a market of small to mainly medium-sized deals and the small segment in particular is less subject to the situation on the international capital markets. Here, acquisitions are more likely to be a result of demographic factors or a chance opportunity. The economic climate also had a clear negative impact on the number of acquisitions by private equity players. This is because the rising cost price of debt financing is leading to a drop in the return on financial acquisitions. But overall, we can see that the Belgian market is holding up surprisingly well.”
In 2022, an average of 6.7 times the EBITDA value (i.e. the operating cash flow) was paid for the acquisition of a company across all size segments; this is the same as in 2021 and 2017 and the highest level since the start of the survey.
Mathieu Luypaert: “The fact that acquisition prices are remaining stable and high in a context of inflation and rising interest rates is reassuring news for sellers. We are seeing a significant shift in the deal structure, however, with debt financing falling to a low point in 2022. Either banks have become more conservative when it comes to granting loans for acquisitions, or buyers are making less use of them because the cost price has risen. The turbulent market is also causing an increase in the use of deferred payments as a means of limiting the need for financing. 39% of the transactions involve a ‘vendor loan’, which enables the buyer to pay part of the acquisition price later. And 36% of the transactions are financed through an ‘earnout’, a variable deferred payment that depends on the operating results after the acquisition.”