Prolonged volatility puts damper on EMEA dealmaking

The EMEA M&A market is currently subject to an array of market pressures. Sky-high inflation, dampening economic demand, and the ongoing Russia-Ukraine conflict mean that dealmakers are operating in a unique period of uncertainty. While M&A in the region remained resilient in 2022, it would seem that market challenges are beginning to have a material impact on deal activity in the region.

The European economy has certainly hit hard times. The euro area dipped into a recession in the six-month period up until March 2023—the first time since the Covid-19 pandemic. Rising gas prices following Russia’s invasion of Ukraine saw inflation rise to record highs at the end of 2022. This, combined with unsustainable food prices, prompted a cost-of-living crisis across much of the region.

Signs of life

Stubbornly high prices mean that interest rates show no sign of decreasing, at least in the near term. In June, the European Central Bank (ECB) raised eurozone interest rates to 3.5%—its eighth successive rate rise and the highest rate since 2001. The Bank of England, meanwhile, increased UK interest rates to 5% in the same month. Some analysts are predicting UK rates to rise even further—peaking at 6.5% by the end of the year.

Yet, while the situation may seem bleak, there are signs of a tentative return to growth within the EMEA region. The economic forecast for European Union growth has been marginally revised upwards on the back of falling gas prices—to 1% in 2023 and 1.7% in 2024, according to figures published by the European Commission. The annual inflation rate in the euro area, meanwhile, decreased to 5.5% in June 2023, down from a decade-high 8.1% a year earlier. It will, however, take time for these trends to translate into a more active deal market.

Within a challenging deal environment, corporates will want more than ever to ensure that there is an excellent strategic fit with their deal target, prompting a more selective approach. Private investors, meanwhile, will be looking towards opportunities in struggling sectors and capitalizing on volatile markets.

Published in association with Datasite, Deal Drivers EMEA provides and in-depth review of M&A activity in the first half of 2023, as well as an outlook for the rest of the year.

The report is also available on datasite.com.