If we set aside the never-ending political uncertainties around the world, there are many factors supporting the outlook of the M&A market. First of all, there is abundance of capital from private equity firms.
According to Preqin, there is $1.1 Tn in “dry powder” ready to be spent around the world, with another $950bn being raised by 3,050 firms. Although the European PMI Index has recently declined, a reading above the 50-points suggests that there is still room for growth. In addition, the European Central Bank’s agenda to end its ultra-loose accommodative policy and plans to implement rate hikes later in 2019 indicate that the growth momentum is unlikely to end soon.
As shown below, the European technology landscape still shows a robust level of optimism about the future. This optimism is more evident in Eastern and Southern Europe. On the other hand, the UK just registered the largest decline in optimism by a wide margin due to Brexit concerns.
In the last few years, many corporates have prioritized technology in their strategic agenda in order to continue the growth momentum and respond to changing circumstances. CEOs are tasked to reinvent and rejuvenate business models between 2018 and 2020 (figure below) with a focus on “value proposition”, “capabilities” or “customer base”. We see M&A as an integral element of these corporate roadmaps, as it opens doors to synergies and scopes of collaboration.
Furthermore, we see technology increasingly becoming the acquisition target of non-tech companies in the pursuit of growth and digitalization. Here, we reiterate our statement in the 2017 M&A outlook as follows:
- Non-tech companies should add mission-critical technology capabilities via M&A;
- Tech companies should leverage solid demand growth and low funding costs to pursue their own M&A agendas (new technologies, customer bases, industry consolidation, etc.). In fact, we are also seeing a strong increase in corporate venture capitalists (CVC), a form of venture capital where big corporate funds are directly investing in external private companies (e.g. GV for Google or M12 for Microsoft).
Thus, technology will be one of the most important aspects for the M&A targets worldwide and across Europe. The figure below confirms this: technology and intellectual property are considered the most important aspects of next European M&A targets for both private equity firms and corporates.