Uphill battle: M&A fees still robust despite drop in deal count

Data Insight Dealspeak 18 January

Uphill battle: M&A fees still robust despite drop in deal count

Many European investment bankers have had the feeling of fighting uphill battles all year. Deal activity plunged in 2022; and Goldman Sachs is slashing thousands of jobs despite winning Mergermarket’s award for European M&A Financial Adviser in 2022.

Given the rough terrain, it is perhaps unsurprising that investment bankers earned USD 19bn in fees from Europe-based clients in 2022, down about a third from USD 29bn in 2021, according to Dealogic data*.

The headline figures include fees from M&A, equity capital markets (ECM), bonds and loans. M&A contributed to the lion’s share of fee value with USD 11bn, down from USD 12bn in 2021.

However, Dealogic’s methodology attributes 90% of the fees charged for an M&A transaction on completion of the deal. This means weak deal activity in 2H22 could be reflected in the M&A fee data for early 2023.

If dealmakers can stay in the fight for the next few months, though, the terrain is likely to improve. The year is still young and blockbuster deals are already coming.

For example, Chiesi Farmaceutici of Italy last week announced a deal to acquire Amryt Pharma [Nasdaq: AMYT], an Irish commercial-stage biopharmaceutical company, for an upfront consideration of USD 1.25bn.

A mixed bag

The top 10 European countries to generate M&A fees displayed a mixed bag of tricks with about half including Italy, Netherlands and Sweden generating more than they had in 2021 while Spain, the UK and Norway showed a decline.

The most lucrative countries to conduct deals were the UK, Germany, France, and Italy, with each contributing more than USD 1bn in M&A fees, according to Dealogic data. The four countries kept their respective places in the top four from 2021.

All top-10 countries were the same with the exception of Denmark which replaced Ireland. In terms of leading fee-generating sectors, industrials, technology, and financial institutions kept the top three places, as they have since 2019, albeit in a different order.

Fighting chance

Providers of virtual data rooms (VDRs) have scouted ahead and reported back on better conditions this half. Further clues that the terrain will improve come from Mergermarket’s Trendspotter series, which look at deal pipelines across geographies and sectors.

The UK Trendspotter shows that deals in Europe’s largest source of fees might take a little longer than before, but they are coming. For example, Hg hired Goldman Sachs and Arma Partners in July for a GBP 2bn (EUR 2.3bn) sale of software provider IRIS Software in a process that is expected this year. The sale of Busy Bees Nurseries for GBP 3bn and up is also expected this year.

The situation is similar in France, number three in the European fees ranking. Auctions might be taking longer than expected, but they are likely to restart this year, according to the country's Trendspotter. Names to watch include Advent-owned biometrics specialist Idemia and Fimalac-owned media group Webedia, as reported.

The mood is also optimistic in Spain despite a disappointing second half. The country is preparing a large bet on green hydrogen. Funds have begun to study early-stage projects and will commit capital as viability becomes clearer, according to the Iberian Trendspotter.

Private equity firm Ardian’s joint venture with FiveT Hydrogen, called Hy24, is an early mover, having bought 30% of Enagas’ [BME:ENG] subsidiary Enagás Renovable, which is expected to invest heavily in the emergent tech.

So, conditions might not be perfect, but dealmakers who can stay on their feet and keep moving will have a fighting chance of success in 2023.

*Dealogic Revenue Data: Dealogic uses a proprietary revenue model to estimate investment banking fees across four key products: M&A, ECM, bonds or debt capital markets (DCM), and loans. 

European revenues indicate fees generated by fee-payers based in that market. 

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