Across the world, merger and acquisition (M&A) activity experienced a significant decline during the first quarter of 2023, reaching its lowest level in over ten years. This slump in dealmaking can be attributed to several factors, including increasing interest rates, soaring inflation, and widespread concerns about a potential economic downturn.
In the Belgian market, a comparable pattern has emerged. During the first quarter of 2023, there were 156 completed transactions, representing a 20% decrease to the first quarter of 2022. The impact was more pronounced for purely Belgian deals (involving both Belgian targets and acquirers) and for Belgian firms acquiring foreign targets – both categories experienced a decline of approximately 25%. On the other hand, transactions involving foreign buyers acquiring Belgian companies saw a relatively smaller decrease of 10%.
As a result of these trends, the proportion of international buyers grew to 30%, up from 26% in the first quarter of 2022. The countries most frequently represented among these foreign buyers included France and the Netherlands, each with 9 deals, followed by the United States with 7 deals, the United Kingdom with 5 deals, and Sweden with 4 deals.
Mixed signals from the Private Equity market
Involvement of Private Equity, whether as the primary buyer (known as a platform investment) or as a backer of either the purchasing or selling party, has become a more important driver of deals. Although the total number of Private Equity-backed deals dropped from 88 in Q1 2022 down to 75 in Q1 2023, this 15% decrease was less compared to the overall 20% decline in the total number of deals. Consequently, Private Equity’s proportion of deal participation continued to grow, reaching 48%.
Upon closer examination of deal involvement specifics, we observe a comparable trend to the broader market, albeit more pronounced. Involvement in exclusively Belgian transactions and those with Belgian purchasers experienced a decline of approximately 25%. Meanwhile, Private Equity engagement with international acquirers saw an increase of 15%.
The recent slowdown in the Private Equity market is not only reflected in the decline of the number of deals but also in the significant 42% drop in the number of Private Equity platform deals. This decline is stronger than the overall market trend, and its main cause can be attributed to the rising interest rates. The increased cost of capital has put pressure on company valuations, while higher financing costs have made it more expensive and riskier for Private Equity firms to engage in debt-heavy transactions.
To Conclude
In conclusion, the M&A landscape in Belgium during Q1 2023 experienced a significant decline, mirroring global trends. Factors such as interest rates, inflation, and economic concerns contributed to this downturn. Despite a decrease in overall deals, the proportion of international buyers and Private Equity participation increased. The decline in Private Equity platform deals, however, points to the impact of rising interest rates on company valuations and financing costs.
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