Benelux Tech M&A demonstrates its strength in its second-best year

In 2022, IT M&A activity in the Benelux remained resilient despite harsh macroeconomic headwinds that persisted throughout the year.

IT M&A broke a new record in 2021 as deal activity rebounded from the COVID-19-induced slowdown and thrived in an environment of more bullish confidence levels, surging fundamentals, and high multiples. While M&A activity appeared poised to continue its frenzy, several macroeconomic developments at the onset of 2022 threw markets off course.

Europe moved away from decades of quantitative easing: The Bank of England hiked interest rates to 3.5% in its ninth increase of the year while the European Central Bank raised its rate to 2%. The equity markets tumbled during H1 2022 as company valuations were driven down in response to future cash flows being discounted at higher rates and becoming less valuable. At the same time, Russia’s invasion of Ukraine heightened market uncertainty and caused several weeks’ pause in Q1 dealmaking as investors grappled with the fallout. PE firms also struggled against increased borrowing and leverage costs for potential deals, and the leveraged loan market came to a virtual standstill in H2, further complicating dealmaking.

Continued trends of increasing digitalisation and technological growth supported capital flow into the sector, with IT accounting for 21.6% of M&A values in 2022. While the first half of 2022 continued the fast pace of tech M&A, dealmaking fell in H2 as buyers and sellers struggled with adjusting valuations, corporate restructuring in major tech companies, and broad inflationary pressures.

Private equity dealmaking remained healthy in Europe in 2022

PE firms still have massive amounts of dry powder, enabling sponsors to capitalise on attractive deals spurred by the market downturn that resulted in lower valuations and distressed assets. Sponsors also continued to deploy capital in a challenged financing environment by taking down deal sizes and turning to add-on acquisitions until lending markets become more accommodative to large platform buyouts.

European PE exits dropped to their lowest value in nine years and dropped sequentially each quarter this year. This is, in part, due to a muted in IPO market with only 17 public listings in 2022, and only six in H2, stemming from the unfavourable market conditions set out by the shift in geopolitical and economic policies. As inflation spiralled out of control due to lockdowns and the Russia-Ukraine war, central banks have had to increase interest rates, which resulted in a correction in public markets. The bloodbath in share prices of recently publicly listed stocks has diminished exit appetite, especially for public listings.

Fundraising in Europe is at its lowest since 2006 in terms of fund count and its lowest since 2014 in terms of capital raised, just €52.8 billion across 92 funds. This means fundraising has more than halved from 2021’s figures when money seemed abundant and easy to raise as opposed to the capital tightening sponsors saw in 2022. Fewer exits have meant fewer distributions, and thus less capital reinvested into new funds.

Record year for bolt-on acquisitions

Add-ons are popular as they rely on their larger acquirer’s credit facility, which makes them easier to finance. Bolt-on acquisitions are usually smaller for corporates and add value in terms of company strategy, as they tend to be a competitor or in the same line of business as their acquirer. Private equity players favour bolt-on acquisitions for companies within their portfolios in periods of market downturn as they allow the large acquiring company to continue growing inorganically through M&A, while fetching a more favourable price for the acquisition.

IT dealmaking in 2022 remained resilient in Benelux despite the macroeconomic environment deteriorating

The closing quarter of 2022 produced 137 registered acquisitions and investments in the Benelux IT market. The momentum was still good; however, we typically see more transactions in the fourth quarter, as this is the best performing quarter.

By comparison, the fourth quarter of 2021 counted 165 deals. For the other quarters of 2022, the counter stood at 137 in Q3, 184 in Q2 and 195 in Q1. Overall, 2022 scored 653 deals, down from 2021 (665 deals) but still more than in 2020 (593 deals), propelled by a strong first half year.

We expect that 2023 will be fruitful year on the Benelux IT market, although with fewer deals than in previous years. The Benelux IT market remains interesting enough for investors and strategics due to its well-developed digital infrastructure and human capital and both are leading countries in cloud adoption. However, the high multiples used to calculate valuations are a thing of the past.


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