For the second year in a row, Stout supported students with their applied research projects in collaboration with Bayes Business School. Student Guillaume Debief authored “High Interest Rates and Their Impact on European M&A Activity.”

Stout played a pivotal role in these projects by offering support and direction for the students’ applied research projects, providing valuable feedback from an industry perspective, and facilitating access to databases essential for research.

Further, Stout provided comprehensive guidance on the structure of the project throughout its drafting stages and assisted in ideation. The two students were also given the opportunity to engage in learning experiences with senior bankers during their visits to the office. The supervision for the students was provided by Sonia Falconieri, the Professor of Finance and Head of the Faculty of Finance at Bayes Business School, and Damian Sebastian Serwin, an Associate at Stout’s London Office.

A summary of the paper is provided below.

Key Takeaways

• Deal Volume: European M&A transactions showed slight growth, with notable variations by country and industry.
• Deal Value: Average deal values declined in the high interest rate period, highlighting tighter financing conditions and significant outliers.
• Industry Focus: Key industries, including technology and healthcare, dominated M&A activity, showing resilience despite economic challenges.
• Economic Factors: High interest rates and macroeconomic uncertainty influenced the size, structure, and frequency of deals.

Navigating M&A in a High-Interest Environment

The European M&A market has demonstrated resilience amid sustained high interest rates. Between May 2019 and December 2023, deal activity across ten European countries revealed shifts in both deal volume and value, driven by tighter monetary conditions and sector-specific dynamics.

Understanding these changes provides crucial insights for investors and dealmakers navigating an evolving economic landscape.

Deal Volume Across Countries

From May 2019 to September 2021, the dataset recorded 1,163 deals. This number rose modestly to 1,175 in the following period (October 2021 – December 2023) despite a challenging financing environment.

• Geographic Leaders: Great Britain led in the number of deals, followed by Italy and France. On the other end, Belgium and Switzerland accounted for the fewest transactions.
• Country-Specific Trends: Spain and Norway experienced increased deal activity in the latter period, while Great Britain and Italy saw slight declines.
• Limitations: The data was drawn from a cleaned dataset, excluding entries with missing values. Actual figures, based on raw data, would likely be higher.
• This geographical distribution suggests that economic conditions, policy changes, and local market dynamics heavily influence deal-making patterns.

Deal Value: Trends and Insights

Deal values showed notable shifts during the high-interest-rate period.

• Declining Averages: Average deal values decreased during the second period, reflecting tighter financing and reduced investor appetite for large transactions.
• Median Stability: Median values remained consistent, emphasizing the skewness caused by outliers.
• Country Comparisons: Great Britain and Italy consistently recorded higher deal values, although their averages were influenced by a few exceptionally high-value transactions.

To address these outliers, the analysis employed logarithmic transformations, which normalized the data and improved the reliability of statistical models.

Industry Dynamics

Industries played a critical role in shaping M&A trends. The top ten industries accounted for 35% of total transactions, with technology, healthcare, and holding companies leading the charge.

• Sector Highlights: Great Britain and Italy dominated activity in the top industries, reflecting their overall M&A leadership.
• Trend Variations: The holding companies sector, for instance, showed a sharp increase in 2022 after a prolonged decline, reflecting shifting investor priorities.

These sectoral patterns underline the importance of targeting resilient and growth-oriented industries in uncertain economic times.

A Path Forward

As Europe continues to grapple with high interest rates, the M&A market reflects both challenges and opportunities. While overall deal volume remains stable, average values are declining, and industry dynamics are shifting, creating a more complex deal-making environment.

For investors, understanding these trends and incorporating them into decision-making processes is essential. By focusing on resilient industries, emphasizing synergies, and adopting flexible financing strategies, dealmakers can navigate the high-interest-rate landscape and position themselves for long-term success.