EMEA and UK Q3 M&A: Down, but not out
Hopes were high for EMEA M&A going into Q3. Unfortunately, that optimism didn’t translate into increased deal values and volumes for EMEA. Nearly every sub-region experienced decreased activity. So, were there glimmers of light across the region and in the UK & Ireland? And are there still deals to be done before the year closes?
EMEA deals: Not as low as Q1
EMEA’s transaction volume sank to its lowest point in three years and value was down on both year-on-year and quarter-on-quarter bases. However, value was not as low as it was earlier this year. In 2023 to date, Q1 was the lowest quarter for aggregate M&A value.
According to Mergermarket data, there was a 33.4% decline in quarter-on-quarter activity to 2,790 transactions, marking the lowest turnout since Q3 2020, a time when investors were still finding their feet following the Covid-19 pandemic’s initial impact. Year-on-year, this was a drop of 32.9%.
Deal value meanwhile came to €164bn, down 25.7% compared to the previous quarter and by as much as 37.9% on the corresponding period last year. There are some grounds for optimism though: the lowest quarterly value reading this year so far fell in Q1, at €132.2bn. Pockets of strength for EMEA, or more accurately relative strength, can be seen in areas like industrials, pharmaceuticals, financial services, and commodity-based industries. Moderately-sized telecoms plays are holding up the formerly leading technology, media and telecoms (TMT) sector in lieu of tech’s valuation slump. Cash-equipped corporates with well-managed balance sheets selectively seized upon the opportunity to scale up as the majority hunkered down.
British strength prevails
The UK & Ireland saw similarly depressed deal stats. There were 641 deals valued at €41.2bn in Q3, respective retreats of 25.2% and 29.8% on the previous quarter, and down 15.7% and 41.9% compared to the same period in 2022.
The region only had two EMEA top-10 M&A transactions in Q3, but it dwarfed value in every other geography in EMEA by a large margin. Volume was also nearly 50% greater than the next most active markets, namely DACH and the Nordics.
Sterling has lagged the euro against the dollar over the past year and US bidders continue to take an active interest in UK assets, where they get more bang for their buck. Because of this, the UK & Ireland is one of only three EMEA markets where US bidders have outgunned domestic acquirers for total deal value, the other two being the Nordics and Italy.
PMB and financial services led M&A value in the UK & Ireland with €9.6bn and €9.3bn, representing quarter-on-quarter moves of plus 22.5% and minus 18.1%, respectively. TMT was some way behind in third place with €6bn to its name, a 58.7% decline from Q2, though has continued to provide more volume than any other industry, with 190 deals, down 24.3% compared to the previous quarter.
Opportunities going forward
Across EMEA, TMT is expected to offer the most opportunities, driven by a confluence of factors including the ongoing restructuring of Europe’s telecoms sector, consolidation in the software space, and the perennial digitalization imperative. It doesn’t hurt that many businesses that may once have been outside of acquirers’ reach are now more affordable.
In the UK & Ireland, industrials & chemicals (I&C) leads the way as the hottest sector in the near term. However, TMT is not far behind. The rising demand for data storage continues to be a reliable secular growth theme for M&A. And while overstretched tech valuations may have seen asset prices tumble, software M&A continues unabated, led by the new AI paradigm. The Digital Co-operation Organization estimates that the digital economy will come to represent 30% of global GDP by 2030, nearly doubling its contribution in less than 15 years. Investors are understandably positioning themselves accordingly, with digital infrastructure one of the most reliable bets.
To learn more, read Deal Drivers: EMEA Q3 2023.
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