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M&A in Italy and Europe is suffering, both in terms of value and volumes. The latest statistics relating to 2023 confirm this for Italy with a minus 70% in value and with a smaller decline of around 10% in volumes, a circumstance which also confirms the resilience of the so-called “mid-cap” segment. This is highlighted by a study by the investment bank Houlihan Lokey.
The uncertainties
There is less debt and it costs more, in a general climate that was with some uncertainty about the 2023 results and today about the 2024 forecasts. «In the face of all this – explains Matteo Manfredi
managing director, Co-Head, Corporate Finance Europe di Houlihan Lokey –
we note what I would call a “bid/ask spread”, that is, between the price that the seller would like to receive and the price that the buyer is willing to pay. Rather than forcing the closure of this gap, it is postponed and therefore we see many operations involving absolutely good companies that simply do not close or are postponed. It is typical of moments of discontinuity, but then this differential – as soon as expectations on inflation and consequently interest rates stabilize and it will also be easier to make forecasts on the economic-financial performance of companies – is destined to find a balance and to reabsorb.”
It is more difficult to understand whether this will happen in the first or second half of 2024, or even later. Overall, there are the first signs in this sense, first of all the stabilization of inflationary dynamics on costs/prices and the consequent greater ability of companies to make economic and financial forecasts.
«M&A operations – confirms André Pichler managing director, Co-Head Corporate Finance Italy of Houlihan Lokey – followed this slowdown dynamic because potential buyers wanted to verify that the price increase policies were sufficient to cover the dynamics of the increase in costs and inflation”.
The dynamics of debt
In this context, the dynamics of debt in private equity operations also has an impact, both in terms of cost but also in terms of amount. Both variables have an influence on the expected returns in new transactions and therefore create downward pressure on the values estimated by potential buyers. «Expectations on debt costs for 2024 – says André Pichler – seem to be able to at least stabilize, but I don’t see a significantly different situation in 2024 from that of 2023 or at least not with such rapid times as to cause sudden changes on the market of m&a”.