📈Key Takeaways: M&A monitor update
📈Key Takeaways from Michaël Boudry , Steven Buyse, Jan Camerlynck en Sophie Manigart about the M&A activity, valuation and deal features over 2024 as well as an outlook over what the coming months may look like:
• 𝐕𝐨𝐥𝐮𝐦𝐞: Overall 2024 showed a stable volume of deal activity, though variations apply, mainly according to the deal size. 𝐓𝐡𝐞 𝐬𝐦𝐚𝐥𝐥 𝐬𝐞𝐠𝐦𝐞𝐧𝐭 𝐞𝐱𝐩𝐞𝐫𝐢𝐞𝐧𝐜𝐞𝐬 𝐦𝐨𝐫𝐞 𝐫𝐞𝐬𝐢𝐥𝐢𝐞𝐧𝐜𝐞, while the larger segment faces a decrease, mostly among the financial buyers. In terms of outlook, the majority is optimistic on the deal volume for 2025, half of the respondents even expect a double digit increase. NOMA as well experienced a clear increase in deal activity on the market.
• 𝐑𝐚𝐧𝐤𝐢𝐧𝐠 𝐨𝐟 𝐝𝐫𝐢𝐯𝐞𝐫𝐬 𝐟𝐨𝐫 𝐝𝐞𝐚𝐥 𝐚𝐜𝐭𝐢𝐯𝐢𝐭𝐲: business confidence in first place, 𝐚𝐯𝐚𝐢𝐥𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐨𝐟 𝐟𝐢𝐧𝐚𝐧𝐜𝐞 𝐢𝐬 𝐬𝐞𝐞𝐧 𝐚𝐬 𝐦𝐨𝐫𝐞 𝐢𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐭𝐡𝐚𝐧 𝐭𝐡𝐞 𝐡𝐞𝐢𝐠𝐡𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐫𝐚𝐭𝐞, while political uncertainty closed the list. Steven Buyse and Jan Camerlynck stressed that 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐠𝐚𝐢𝐧 𝐭𝐚𝐱 𝐚𝐬 𝐚 (𝐧𝐞𝐰) 𝐝𝐫𝐢𝐯𝐞𝐫 𝐜𝐚𝐧’𝐭 𝐛𝐞 𝐮𝐧𝐝𝐞𝐫𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐝. While the first news triggered several exits before yearend, the actual expectation that the tax might enter into force beginning 2026 renewed the sense of urgency. 𝐀 𝐜𝐥𝐞𝐚𝐫 𝐜𝐚𝐥𝐥 𝐰𝐚𝐬 𝐦𝐚𝐝𝐞 𝐛𝐲 𝐭𝐡𝐞 𝐩𝐚𝐧𝐞𝐥 𝐭𝐨 𝐤𝐞𝐞𝐩 𝐭𝐡𝐞 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐦𝐞𝐭𝐡𝐨𝐝 𝐨𝐟 𝐭𝐡𝐞 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐠𝐚𝐢𝐧 𝐭𝐚𝐱 𝐚𝐬 𝐬𝐢𝐦𝐩𝐥𝐞 𝐚𝐬 𝐩𝐨𝐬𝐬𝐢𝐛𝐥𝐞, in order to avoid lengthy audits that would not add any value. Volatility in the markets should not (always) been seen as negative, as it keeps PE quick and agile.
• 𝐌𝐮𝐥𝐭𝐢𝐩𝐥𝐞: The multiple in small segments remains stable at 5, while the large segment shows a slight uptick. Steven Buyse confirmed that top tier firms still realize exits at high multiples.
• 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐦𝐞𝐭𝐡𝐨𝐝: 75% of the transactions do apply a multiple valuation method, while only 25% makes use of the DCF method. While using several methods, such as the LBO model, Steven Buyse referred to the 𝐄𝐁𝐈𝐓𝐃𝐀 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞 𝐚𝐬 𝐭𝐡𝐞 𝐥𝐢𝐧𝐠𝐮𝐞 𝐟𝐫𝐚𝐧𝐜𝐚 and to the DCF as … less useful. A model should rather be understood, tested and tweaked to reflect reality, such as the impact of further investments to the valuation. In addition, the panel suggested working capital should become a more important criterium. NOMA fully shares the point of view that a sound understanding and correct application of the method is key.
• 𝐅𝐞𝐚𝐭𝐮𝐫𝐞𝐬. The use of 𝐕𝐞𝐧𝐝𝐨𝐫 𝐋𝐨𝐚𝐧𝐬 further increases, even to 43%, while 𝐞𝐚𝐫𝐧-𝐨𝐮𝐭𝐬 were applied only in 31% of the cases.
• 𝐖𝐚𝐫𝐫𝐚𝐧𝐭𝐲 𝐚𝐧𝐝 𝐈𝐧𝐝𝐞𝐦𝐧𝐢𝐭𝐲 𝐈𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞. While the Belgian market was lagging on the use of warranty and indemnity insurance, the panel saw a 𝐜𝐥𝐞𝐚𝐫 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞. While a negative side of the medal could be that the seller might be less aware of the content of the agreed warranties, the advantages are two-fold; 𝐢𝐭 𝐚𝐯𝐨𝐢𝐝𝐬 𝐚 𝐭𝐚𝐢𝐥 𝐨𝐟 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐚𝐧𝐝 𝐦𝐨𝐫𝐞𝐨𝐯𝐞𝐫 𝐭𝐡𝐞 𝐮𝐬𝐞 𝐨𝐟 𝐢𝐧𝐬𝐮𝐫𝐚𝐧𝐜𝐞 𝐜𝐚𝐧 𝐡𝐞𝐥𝐩 𝐭𝐨 𝐬𝐩𝐞𝐞𝐝 𝐮𝐩 𝐭𝐡𝐞 𝐩𝐫𝐨𝐜𝐞𝐬𝐬 𝐚𝐧𝐝 𝐜𝐨𝐧𝐯𝐢𝐧𝐜𝐞 𝐬𝐞𝐥𝐥𝐞𝐫 𝐭𝐨 𝐭𝐚𝐤𝐞 𝐭𝐡𝐞 𝐣𝐮𝐦𝐩. This trend surprised us, as to NOMA’s experience such insurance is applied only occasionally.
• 𝐋𝐞𝐧𝐠𝐭𝐡. Given the volatility, 𝐛𝐮𝐲𝐞𝐫𝐬 𝐭𝐚𝐤𝐞 𝐦𝐨𝐫𝐞 𝐭𝐢𝐦𝐞 𝐭𝐨 𝐣𝐮𝐦𝐩. Buyers prefer to wait a couple of quarters to get to know a business and its base level.
• On AI, besides the opportunity to speed up deal processes, interestingly the panel shared that 𝐀𝐈 𝐚𝐜𝐭𝐮𝐚𝐥𝐥𝐲 𝐛𝐞𝐜𝐨𝐦𝐞𝐬 𝐚 𝐃𝐮𝐞 𝐃𝐢𝐥𝐢𝐠𝐞𝐧𝐜𝐞 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧. For example, recently an AI Vendor Due Diligence was performed on a certain company to anticipate questions from potential buyers on how disruptive AI would be for that company. The panel expects such question will become a standard in Due Diligence reviews.