Signs that European M&A activity will pick up the pace in Q3 are "promising", says Credit Suisse

Financial data

A new report from Credit Suisse and law firm CMS analyses the financial and legal implications of the Covid-19 pandemic on M&A transactions in Western Europe.

The report – Impact of Covid-19 on European M&A activity – shows that 2020 got off to a strong start with European M&A volumes in mid-March increasing by 27 percent over the same period last year. 

However, M&A volumes dropped significantly towards the end of March and continued to drop progressively in April due to the Covid-19 pandemic and the implementation of social distancing measures. 

There are still a number of announced deals that are being delayed or cancelled, including the sale of PartnerRe to Covea, as firms try to wait out the worst of the downturn or restructure deals. 
But changes are happening on a day-to-day basis in the current environment, and the Covid-19 pandemic also seems to create new opportunities for distressed M&A, strategic buyers, private equity and financial sponsors. There are signs that activity is slowly coming back and the situation is “very dynamic,” according to Marco Superina, who heads up M&A Switzerland at Credit Suisse. He is one of the co-authors of the report.
While in the short term a deterioration in business confidence and uncertain growth outlook will result in declining European M&A activity, prior crises have shown that once confidence returns, M&A activity rebounds strongly, state the authors of the report.
Assuming the virus can be contained, the second half of the year could see a recovery in deal activity, fuelled in part by pent-up demand, according to Credit Suisse and CMS.
“It all depends on whether there will be a second wave coming or not. The only scare we see will be a second wave. After Summer break will be when everybody is testing the waters. I think, if you would have asked me two weeks ago I wouldn’t have been so optimistic. Now, I would say that there are promising signs for Q3 activity to pick up pace,” said Superina.

In his view, the opportunities for the private equity sector will be mainly good business models at depressed values as a consequence of the pandemic, followed by business models that have shown resilience recently.

“Those cherry picking deals will be focused on the areas that are going to survive,” commented Superina. “Due to the pandemic retail has experienced a very hard time, and this brings with it private equity interest in those types of assets. There will also be an increase in shareholder loans, and within refinancing,” he added.

Once European M&A activity picks up again, infrastructure and healthcare are in a good position. “Particularly food producers seem to be doing quite well. We could see some consolidation within the consumer product sector,” said Mark Ziekman, partner at CMS’ Amsterdam offices and co-author of the report.
“From a legal perspective, locked box seemed to be the norm for PE deals in Western Europe. This now may be changing and there may be more PE deals with a purchase price mechanism. Particularly if US private equity firms get involved,” added Ziekman.