July 25, 2023
In the current challenging buyers’ market, dealmakers are facing increased pressure to successfully close transactions. The recent Mergermarket M&A Forum Germany shed light on the shift from a seller’s market to a buyer’s market, where buyers are taking extra precautions to safeguard their interests, such as incorporating prolonged earnout clauses into their deals.
According to an insightful podcast by Patrick Costello in Mergermarket, earnouts which traditionally lasted for 12 months are being extended to 24 months or even longer. These extended periods are contingent upon various metrics including EBITDA.
Andreas Hüchting, Partner at Translink Corporate Finance Germany, says, “Deal volumes in the DACH region have fallen by more than 26% during the first quarter of 2023 compared to the same period in the previous year. Dealmakers are currently faced with the challenge of navigating the ‘wait and see’ market. To succeed, advisors must possess a diverse range of strategies, including the increased utilisation of earnouts and vendor loans.”
The Mergermarket article also highlights that the record-breaking dealmaking of 2020 and 2021 was fuelled by exceptionally low interest rates. However, the current environment, characterised by high interest rates and inflation has resulted in a stagnation of dealmaking activities – namely in the mid and large cap segment – and a widespread repricing of assets across the market.
Amidst this challenging landscape, financing and valuation gaps remain major hurdles. Nevertheless, there is a growing optimism that the worst is behind us. The general sentiment suggests that a recovery is expected later in 2023, and most of the asset repricing has already taken place. It is anticipated that there will be ample availability of capital in the market coupled with a scarcity of appropriately priced quality assets, which will help stabilise valuations.
Certain sectors have been more resilient than others throughout this period of uncertainty. Healthcare and technology sectors have remained largely unaffected, thanks to the financial strength of investors and the scarcity of available assets.
Hüchting highlights that Translink has successfully engaged in robust dealmaking despite the challenging circumstances, benefiting from their extensive global footprint, deep local insights and sector expertise. He predicts that the remainder of the year will witness an improved dealmaking environment with notable opportunities across many sectors, including healthcare, technology, education, services and industrials. At Translink Corporate Finance, we get the deal done.
We get the deal done
We specialize in small and medium-sized cross-border M&A, typically with a transaction value in the range of EUR 10-300 million. Get In Touch with us today and let us help you get the deal done.