M&A in Europe: Deal Volumes Soar 5-Fold in Two Decades

Europe boasts a rich and varied economic landscape, encompassing diverse and dynamic markets, each with distinct characteristics.

Due to a multitude of reasons, the continent’s growth rate typically trails behind that of the USA. Despite these “headwinds”, the M&A landscape in Europe has experienced a remarkable surge over the past two decades, marked by a steady upswing in deal flows across most countries.

This post will shed light on Europe’s mergers and acquisitions history and current landscape, spanning from 2003 to 2023, by exploring European deal flow, including cross-border vs. domestic deals, strategic vs. financial acquisitions, top sectors, deal value, and valuation multiples.

Table of Contents

I. Total deal volumes

II. Domestic vs. cross-border M&A

III. Strategic vs. financial acquisitions

IV. M&A activity across sectors

V. Deal value

VI. Valuation multiples

The M&A landscape in Europe

This section provides an in-depth analysis of merger and acquisition activity across Europe. Examined areas include deal volumes, cross-border investments, investor types, top sectors, median deal sizes, and valuation multiples. The energy transition, driven by large-scale investment in sustainable energy generation, transmission, and storage, is significantly impacting M&A activity in the region.

Total deal volumes

Despite periodic setbacks, M&A in Europe has grown steadily over the past 20 years at an 8.6% compounded annual growth rate. The 2008 global financial crisis and the 2020 pandemic temporarily slowed dealmaking, but activity rebounded quickly after each downturn. Notably, despite facing hurdles like geopolitical conflicts, rising interest rates, supply chain disruptions, and surging energy costs, total European deal flow peaked in 2023.

While not all European economies experienced the same level of M&A activity, the continent’s diversity drove regional flows and high aggregate growth. Ireland, Norway and Portugal have experienced double digit growth in M&A transactions in the last 10 years. In 2023, total deal volumes remain highest in major Western economies like the UK, Germany, and France.

However, Central and Eastern Europe is emerging as a significant player in the M&A landscape, with countries like Poland and Czechia seeing increased activity due to strong growth, outsourcing potential and investor interest in untapped markets. This trend indicates a shift towards a more balanced distribution of M&A activity across the continent.

Domestic vs. cross-border M&A

While domestic deals dominated European M&A, cross-border activity picked up over the second half of the analyzed period. Cross-border transactions accounted for 42% of total deal volume in 2023, up from 37% in 2003. Overall, cross-border deals averaged 40% of total M&A transactions over the 20 years period.

The inclination towards cross-border M&A is fueled by an eagerness for geographic expansion and sectoral diversity amongst acquirers and investors. Their willingness to look across borders for value and build regional connections gives European dealmaking a competitive advantage.

Next, we analyzed the level of cross-border vs. domestic activity amongst the top 15 nations with the most recorded deals between 2003 and 2023. Generally, in nations with lower aggregate deal flow, the proportion of cross-border to total M&A rises, barring exceptions like Germany and Finland.

Large economies, like the UK and most Western European countries, witness higher overall deal volumes due to numerous domestic acquisitive companies, resulting in more domestic M&A. On the other hand, smaller countries, limited in domestic deal potential, rely heavily on attracting foreign acquirers.

Our analysis extends to the origin of the most active foreign acquirers in Europe and the sectors attracting them. While most cross-border deals involve European buyers, the US is the largest foreign buyer by aggregate deal count, accounting for approximately 24% of all cross-border transactions in Europe between 2003 and 2023.

North American acquirers, in particular, are poised to drive further cross-border expansion in Europe, spurred by shared language, business practices, and entrepreneurial DNA. While regional partnerships will continue within Europe, openness to diverse foreign buyers is critical to maximizing deal potential on the global stage.

In sector terms, services (other), software, consumer goods, industrials, and healthcare draw the most foreign interest. With European nations emerging as tech hubs, software, and related sectors will likely remain top targets.

Strategic vs. financial acquisitions

During the first half of the analysis period, strategic buyers dominated acquisitions, surpassing financial buyers which included private equity and venture capital firms. Factors contributing to this trend include less developed markets, a limited number of startups and companies with operational models suitable for PE investments, and the relatively lower appeal and familiarity of alternative investments.

In the second half of the analyzed period, however, particularly in recent years, PE/VC activity in Europe increased significantly and accounted for more than 35% of total deals since 2020. Given the growing popularity of roll-up strategies, where a strategic investor backed by a PE fund performs acquisitions, we believe the financial investors can account for even larger share.

This transformation can be attributed to various developments, including advancements in financial markets, growth of the technology sector, and financial investors accumulating substantial amounts of dry powder.

Additionally, the prolonged period of low-interest rates played a crucial role. Low-interest rates made borrowing cheaper, allowing financial buyers to leverage acquisitions more effectively and pursue larger deals. The abundant availability of capital combined with the search for higher returns in a low-yield environment further fueled the rise of financial buyers in the European M&A landscape.

Moving forward, our analysis shifted to a country-level examination to identify markets exhibiting the highest percentage of financial buyers.

In all largest M&A markets in Europe the financials buyers accounted for around 25-30% of all transactions, with a notable exception of France, where financial investors were the buyers in the 39% of the transactions.

M&A activity across sectors

When examining sector diversification, we uncovered a robust and balanced mix, with no single sector accounting for more than 13% of the total deal flows. Notably, other services, computer software, consumer, industrial, along with the medical, emerged as frontrunners that collectively represented more than half of all European M&A deals throughout the period.

Additionally, we observed strong activity within the financial and construction sectors. The energy sector also experienced a boost in recent years, propelled by an ongoing transition towards renewable energy across European countries.

A deeper analysis into the technology M&A showcased the software sector as a clear winner in deal volumes, displaying a remarkable ascent from 113 deals in 2003 to a staggering 3,095 deals by the end of 2023, with peak volumes in 2022.

Deal value

The median deal value across Europe experienced a significant transformation over the last 20 years. Following the 2008 global financial crisis, the median deal value gradually declined yearly, with a few exceptions. In 2020, the pandemic halted M&A activity in the first half of the year, dropping the median deal value to a mere EUR 10.0 million.

Just a year later, however, it skyrocketed by more than double to EUR 21.8 million, as dealmaking activity thrived across most sectors under the favorable risk-on environment. Despite challenging macroeconomic conditions in 2022, including central banks adopting a more cautious approach to curb inflation, the median deal value continued its ascent, but dropped to 16.9 million in 2023, as the European economies struggled with growth and valuations declined.

Valuation multiples

Over the decades, both revenue and EBITDA multiples exhibited substantial growth, surpassing their 2003 values by the end of 2022. However, the trajectory wasn’t consistently upward, particularly for the EBITDA multiple, which experienced considerable fluctuations throughout the 20 years.

After a steady rise between 2003 and 2007, the EBITDA multiple plummeted by 3.5x in 2009 as the Global Financial Crisis unfolded. Following that, the median EBITDA multiple in Europe was characterized by a slow-paced rise with occasional setbacks. The last two years witnessed another noteworthy surge due to fiscal and monetary stimulus, driving investor optimism and valuation to unprecedented levels.

Similarly, the median revenue multiple followed a similar pattern, albeit with fewer pronounced fluctuations. Most notably, the revenue multiple’s decline during the 2008 financial crisis was significantly milder than the EBITDA multiple. There was also a substantial increase in value during the 2021 upswing. Unlike the EBITDA multiple, however, which sustained growth throughout 2022, the revenue multiple experienced a slight decline over the same period.

In 2023, both revenue and EBITDA multiples compressed significantly by 0.5x and 3.4x respectively. This is the largest annual compression recorded between 2003 – 2023. A number of factors including the war in Ukraine, recession in a number of European countries and record-high interest rates could be the explanations for the drop.

In a previous blog post focusing on Central and Eastern Europe (CEE), an in-depth analysis of median valuation multiples across various regions of Europe revealed a growing “CEE Discount” in these multiples compared to the broader European market. 

Factors contributing to this discount include smaller deal sizes, less intense buyer competition, and greater market fragmentation. Additionally, elevated political and economic risks in certain CEE countries also contributed to this discount. Finally, it’s worth noting that higher risk-free rates in several CEE nations have resulted in lower valuations due to the discounting of future cash flows.