It was clear from the opening months of the year that 2022 would be no walk in the park for global M&A markets including EMEA, which has been beset by its own unique set of challenges. Over the course of the year, these systemic risks built up and this was reflected in Q3 more than any previous quarter in 2022.

Even as the winter months approach, COVID feels like a distant memory and attention has now turned to Europe’s energy security in the wake of Russia’s now months-long incursion in Ukraine, which has disrupted liquefied natural gas supplies into the region. There are expectations that some countries may face rolling blackouts in the last quarter of this year and the start of the next year. Already, in Germany, some manufacturing companies have halted production due to record-high energy prices.

Overall, the first three quarters of the year saw 8,279 deals which totaled €844.9bn, a 14% drop year-on-year in terms of deal volume and a 16% decline in deal value.

Inflation drags

All of this is exacerbating what was already decades-high inflation and further complicating dealmaking. Even companies that are able to grow their revenues in this environment are seeing significant impacts on their margins as costs escalate at different rates for various goods. That inflation is now beginning to embed in services, as seen in the services producer price index (SPPI). This can be a problem as many services prices, such as transport costs, tend to increase very slowly and once inflation sets in it can prove to be a lot stickier in these segments.

Europe is behind the US in its monetary tightening cycle but is already beginning to lift interest rates. The European Central Bank (ECB) raised rates by an unprecedented 75bps in its September 2022 meeting, following a 50bps rate hike in July, putting the baseline at 1.25%. This has inevitably caused a drag on growth, an increase in deal financing costs, and dampened M&A activity overall. Until a positive outcome is resolved in Ukraine, energy supplies are improved, supply chains regain greater resilience and, ultimately, price growth begins to cool, a slower pace of deals can be expected.

Published in association with Datasite, Deal Drivers EMEA provides an in-depth review of M&A activity in 2022, as well as a look ahead to 2023.

The report is also available on datasite.com.