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

Europe’s economy is a vibrant tapestry, encompassing diverse and dynamic markets with distinct features. Due to its decentralized economic and political structures, the growth rate of the continent as a whole tends to lag behind that of the USA. Despite these “headwinds”, the M&A landscape in Europe has experienced a remarkable surge over the past two decades, with a steady upswing in deal flows across most countries.

This blog post will shed light on Europe’s mergers and acquisitions landscape by exploring its M&A activity, including total deal flows, median valuation, multiples, and more.

Table of Contents

I. Total deal volumes

II. Cross-border vs. domestic 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.

Total deal volumes

Despite periodic setbacks, M&A in Europe has grown steadily over the past 20 years at a 21.2% compound annual rate. The 2008 financial crisis and the 2020 pandemic temporarily slowed dealmaking, but activity rebounded quickly after each downturn. Total European deal flow peaked in 2022 even as the continent grappled with rising interest rates, supply chain disruption, and surging energy prices.

Not all European economies attracted the same level of M&A investment, but the continent’s diversity drove regional flows and high aggregate growth. Central and Eastern Europe saw remarkably rapid expansion, though total deal volumes remain highest in major Western economies like the UK, Germany, and France. 

Cross-border vs. domestic M&A

Though domestic deals dominated European M&A, cross-border activity picked up over the second half of the analyzed period. Cross-border transactions comprised 47% of total deal volume in 2022, up from 37% in 2003. Overall, cross-border deals averaged 40% of total M&A transactions over the 20 years period. 

The level of cross-border M&A is supported by an appetite for geographic expansion and sectoral diversity across 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 among the top 15 nations that recorded the most deals between 2003 and 2022. With few exceptions, such as Germany and Finland, cross-border to total M&A proportion tends to rise as aggregate deal flow decreases in a given nation.

Large economies like the UK and most countries in Western Europe conduct more deals overall thanks to many acquisitive domestic companies, so domestic M&A dominates. Smaller countries, on the other hand, are more incentivized to facilitate cross-border investment. Their domestic deal potential is limited due to the few local companies that have the capacity for acquisitions, so growth depends more heavily on attracting foreign acquirers through policy and cooperation.

Our analysis concludes by examining the origin of foreign acquirers most active in Europe and the sectors attracting them. While most cross-border deals involve European buyers, acquirers from the US and Canada also made it into the Top 10 by the aggregate value of deal count. 

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, its openness to diverse foreign buyers is critical to maximizing deal potential on the global stage.

In sector terms, software, consumer goods, industrials, healthcare, and financials 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, the prevalence of acquisitions executed by financial buyers, including private equity and venture capital firms, remained relatively low compared to strategic buyers. Several factors contributed to this trend, such as less developed markets, a limited number of startups and companies with operational models suitable for PE investments, and the relatively lesser attractiveness and familiarity of alternative investments.

However, in the second half of the analyzed period, particularly in recent years, financial buyer activity has significantly increased, accounting for one-third of the total deals since 2019. This transformation can be attributed to various developments, including advancements in financial markets, the growth of the technology sector, and financial investors accumulating substantial amounts of dry powder.

Moving forward, our analysis shifted to a country-level examination, focusing on which markets exhibited the highest percentage of financial buyers. To ensure robust findings, we narrowed our scope to the top 15 countries, excluding those with a total deal count below 500 throughout the analyzed two-decade period. Alongside notable economies like France, Germany, and the UK, we observed a substantial attraction of financial buyers to some of the smaller economies such as Luxemburg, Iceland, Estonia, and Lithuania.

M&A activity across sectors

When examining sector diversification, we uncovered a robust and balanced mix, with no single sector accounting for more than 12% of the total deal flows. Notably, the consumer sector, encompassing food, beverages, and retail, along with the industrial and software industries, emerged as frontrunners, collectively representing one-third of the total deals. Moreover, we observed vigorous activity within the financial and medical sectors. Also, the energy sector experienced a significant boost in recent years, propelled by an ongoing energy transition as European countries pick up their renewable energy adoption.

We ventured deeper into the analysis of the technology sector. Within this domain, the software sector emerged as a clear winner in deal volumes, displaying a remarkable ascent from 113 deals in 2003 to a staggering 3,198 deals by the end of 2022.

Additionally, we observed a notable surge in eCommerce deals until recently. However, the landscape experienced a shift as worsening macroeconomic conditions and the conclusion of the work-from-home era influenced investor sentiment, causing eCommerce companies to fall out of favor 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, due to the pandemic, M&A activity halted in the first half of the year and the median deal value dropped to a mere EUR 10.0M.

However, just a year later, 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 the challenging macroeconomic conditions in 2022, with central banks adopting a more cautious approach to curb inflation, the median deal value continued its ascent, currently standing at EUR 27.4 million, well above pre-pandemic levels.

Valuation multiples

Over the decades, the revenue and EBITDA multiples exhibited substantial growth, surpassing their 2003 values by the end of 2022. However, the trajectory of valuation multiples was not consistently upward, particularly in the case of the EBITDA multiple, which experienced considerable fluctuations throughout the 20 years.

Between 2003 and 2007, the EBITDA multiple steadily increased, only to plummet by 3.5x in 2009 as the Global Financial Crisis unfolded. Subsequently, the median EBITDA multiple in Europe experienced a slow-paced rise with occasional setbacks. In the final two analyzed years, we 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 comparable narrative, albeit with fewer pronounced fluctuations. Notably, the decline in the revenue multiple during the 2008 financial crisis was significantly milder than the EBITDA multiple. Additionally, there was a substantial increase in value during the 2021 upswing. However, unlike the EBITDA multiple, which sustained growth throughout 2022, the revenue multiple experienced a slight decline over the same period.

In a previous blog post focusing on Central and Eastern Europe (CEE), we conducted an in-depth analysis of median valuation multiples across various regions of Europe. Our findings reveal a growing “CEE Discount” in valuation multiples utilized in deals within Central and Eastern Europe, as compared to the rest of Europe.

This discount results from several factors, including smaller deal sizes, less intense buyer competition, and more significant market fragmentation. Moreover, elevated political and economic risks in certain countries have also contributed to this discount. Finally, it’s worth noting that several CEE nations have higher risk-free rates, which are utilized for discounting future cash flows, ultimately leading to lower valuations.