• 2016 M&A Monitor: Shedding light on M&A in Belgium

      Luypaert, Mathieu (2016)
      In these times of globally booming M&A activity, I am pleased to present the first M&A Monitor of the Centre for Mergers, Acquisitions and Buyouts of Vlerick Business School. This Monitor supersedes the annual Entrepreneurial Buy-out Monitor that Vlerick has conducted over the past years. The scope has been expanded to consider all types of mergers and acquisitions. By capturing the opinions of 142 M&A experts in Belgium – including bankers, private equity investors, advisors, brokers, lawyers, family offices and mezzanine players – we provide a comprehensive overview of current trends and challenges in the domain of M&A in Belgium. The findings presented in this report are of great interest to all professionals active in the Belgian M&A market, as well as to decision-makers on both the selling and the buying sides. The results strongly indicate that Belgian M&A activity is surging − with 2 out of 3 respondents observing an increase in the number of M&A transactions. Competition amongst buyers has intensified, as the current market is clearly demanddriven, fuelled by easily available bank financing and the extensive amount of dry powder of private equity companies. The increased interest of family offices, wealthy individuals and foreign PE firms in the Belgian midcap segment puts additional pressure on the buy-side. A demand-driven M&A wave naturally results in rising valuations and M&A multiples. The experts surveyed overwhelmingly indicate that multiples have increased over the past year, leading to an average EV/EBITDA multiple across all industries and size classes of 6.1. Nevertheless, the imbalance between high demand and limited (high-quality) supply of companies also calls for caution. Academic evidence shows that transactions taking place at the top of an M&A wave are typically less profitable. These deals are more likely to be driven by hubris and herding behaviour. In addition, most interesting targets have usually been acquired at the start of the wave, leaving only targets that do not fully meet the ideal selection criteria. That’s why a detailed upfront assessment of the motives for buying a company, and a realistic estimate of potential synergy gains, prove to be of utmost importance in successful M&A. Our survey results indicate that realising economies of scale is considered to be the primary motive for strategic buyers, while financial buyers focus mainly on opportunities to follow a buy-andbuild approach or improve revenue and/or margin. The results presented in this monitor also provide interesting insights into the deal structure (use of vendor loans, earnouts, leverage ratios) and process (nature of sale process, use of vendor due diligence, length of M&A process). We open the black box of price negotiations and find, for example, that almost 1 out of 2 experts indicates that the average final deal price exceeds the initial indicative offer, while only 1 in 4 reports a lower final deal price compared to the offer price.
    • 2017 M&A Monitor: Shedding light on M&A in Belgium

      Luypaert, Mathieu; De Lange, Nicolas (2017)
      Following an annual tradition, this M&A Monitor presents an overview of current trends in the Belgian M&A market. Based on survey responses of 120 M&A experts in Belgium, we present unique insights into the evolution of M&A activity, typical multiples, deal structures and process characteristics. Every year, we devote special attention to one particular aspect of M&A. In the current edition, we focus on cross-border transactions by Belgian acquirers, representing around one third of all deals that the surveyed experts have worked on. The most targeted countries in Europe are France, The Netherlands and Germany. Despite a global drop in M&A activity (from a record level of $4.5 trillion in 2015 to around $3.5 billion in 2016), Belgian M&A volume is still growing intensively. Two out of three respondents observed an increase in Belgian M&A activity in 2016. Moreover, only 10% of all experts anticipate a possible drop in 2017. While we observe a similar picture for Belgian targets acquired by international companies, more conservative growth numbers are expected for cross-border takeovers by Belgian acquirers. An uncertain political climate as a result of the Brexit, Trump’s US protectionism, and upcoming elections in several EU countries might impede Belgian acquirers from pursuing a cross-border external growth trajectory. The continued traction in the Belgian M&A market is also reflected in elevated multiples. The average Enterprise Value (EV)/EBITDA multiple rose for the fourth year in a row towards a level of 6.4. Belgian acquirers are even found to pay on average 7 times EBITDA in cross-border acquisitions. Academic evidence indicates that cross-border acquirers are willing to pay higher premiums because of the cross- border targets’ country-specific knowledge and local distribution networks. The respondents indicate that bank financing is readily available at cheap rates and has improved especially for the segment of deals worth less than €5 million. The average ratio of net financial debt (NFD)/EBITDA for this segment of smaller transactions increased from 2.1 in 2015 to 3.3 in 2016. Banks seem to increasingly consider acquisition financing of smaller companies with a proven track record as an alternative source of income, leading to looser credit standards. In line with rising bank financing, a decline in the amount of (semi-) equity that is needed to finance an MBO/ MBI is observed for transactions under €5 million, dropping even below 30% on average. Similarly, the use of vendor loans and earnouts across all deal sizes has diminished significantly. These findings, and many other critical aspects of domestic and cross-border M&A, are explored in detail in this 2017 M&A Monitor.
    • 2018 M&A Monitor: Shedding light on M&A in Belgium

      Luypaert, Mathieu; Spolverato, Gianni (2018)
      Is the sky really the limit for M&A? Since the first edition of this Belgian M&A Monitor five years ago, we have witnessed a continuous surge in the number of transactions and the multiples being paid. The average EV/EBITDA multiple in Belgian M&A increased from 5.0 in 2013 to 6.7 times EBITDA nowadays. The number one concern highlighted by M&A advisors that filled in our survey, is the current overheating of the market. Nevertheless, two out of three respondents expect M&A activity in Belgium to keep on rising in 2018. It is of course not surprising to observe elevated multiples in a seller’s market that is characterized by economic recovery and easy access to cheap financing. However, the question remains of whether acquisition prices have reached their limits. Part of the answer lies in the interpretation of the multiple which is in fact simply the inverse of the required return by investors. An EV/EBITDA multiple of 6.7 indicates that investors would realise a return of approximately 15% before taking into account any investment expenditures. A further increase in prices would result in returns that no longer outweigh the risks associated with the acquisition. We can only hope that both strategic and financial buyers keep on making this reflection. Despite the critical note in the above paragraph, high multiples could of course be warranted in case of strong growth potential or limited risk in the target’s business. That is why we report for the first time valuation and financing multiples per sector. Industries with relatively lower multiples are “Retail” (5.3x EBITDA), “Transport and logistics” (5.7x) and “Construction” (6.0x). Sectors characterized by superior multiples are “Technology” and “Healthcare” (both 8.2x), “Pharmaceuticals” (9.2x) and “Real Estate” (9.3x). We are convinced that publishing these sector multiples increases the practical usefulness of this Monitor even further in setting price expectations for Belgian M&A. In previous editions, M&A advisors emphasized the Belgian unstable regulatory and tax environment as a restraining factor for M&A activity. In our most recent survey, we explicitly inquired respondents about their expectations concerning the reform package agreed upon by the Belgian federal government and presented in its “summer agreement”. While the vast majority of M&A professionals expect a neutral or slightly positive impact due to especially the decrease in corporate tax rate and the introduction of tax consolidation, some also highlight the interest deduction limitation based upon EBITDA and more stringent conditions for the exemption of capital gains as possible limiting factors. In the remainder of this 2018 M&A Monitor, detailed insights are presented into the evolution of Belgian M&A activity, current typical payment and financing structures and various process characteristics that could be highly relevant for buyers, sellers and all professional parties involved in Belgian M&A.
    • 2019 M&A Monitor: Shedding light on M&A in Belgium

      Luypaert, Mathieu; Spolverato, Gianni (2019)
      All good things must come to an end… This phrase also holds in M&A markets that have historically been characterized by a wave pattern. While the most recent global wave started around five years ago, a turning point might have been reached. The global amount spent on acquisitions increased further in 2018 to almost $4 trillion, despite a very strong drop in deal volume during the final quarter. The sudden plunge in deal activity seems to be driven by political and economic uncertainties rather than financial constraints, with a cost of borrowing staying at a historically low level and dry powder at private equity funds reaching a record level of $2 trillion (Bain & Company Global PE report). The results of our own Belgian M&A monitor confirm that deal activity surged in 2018 but, at the same time, the surveyed experts largely expect a stabilising market in the year to come. Interestingly, some remarkable changes can be observed in motives driving Belgian M&A transactions. Whereas realising economies of scale stays the number one acquisition reason, other motives, like gaining new technologies and attracting talent (or “acqui-hires”), have increased significantly in importance over the past years. Deal drivers in private equity transactions remain constant with a buy-and-build approach as preferred value creating strategy. In addition, we observe a significant decline in the fraction of cross-border deals by Belgian acquirers from 36% to 25%. The major contribution of our yearly M&A monitor is that we present unique insights into the specific Belgian M&A setting that is particularly characterized by small and mid-market deals. While only limited information is publicly available on mid-market M&A, virtually no data is published for really small transactions. Therefore, we present a separate category of data for deals with a transaction value below €1 million for the first time. Remarkably, the surveyed professionals are much more positive on growth expectations in this segment of the market with 2 out of 3 respondents expecting a further growth in 2019. The intensified competition in the midmarket segment might indeed push strategic as well as financial buyers more and more towards smaller deals. In last year’s M&A monitor, we expressed a clear call for caution in terms of multiples paid, questioning whether the elevated acquisition prices still allow to realise returns that outweigh the risks of the transaction. For the first time in six years, however, we now observe a slight drop in EV/EBITDA multiple across all Belgian transactions from 6.7 to 6.5 (ranging from an average of 4.4 for deals smaller than €1 million to 9.7 for deals exceeding €100 million). The minor reduction in multiples is mainly driven by the smaller deal categories (below €5 million). Nevertheless, upcoming sellers should not yet panic as the majority of surveyed experts do not yet predict a significant decrease in multiples in 2019. These observations and many other typical deal, financing and process characteristics are presented and discussed in detail in the remainder of this document.
    • 2020 M&A Monitor: Shedding light on M&A in Belgium

      Luypaert, Mathieu; Spolverato, Gianni (2020)
      The Belgian mergers and acquisitions market experienced a good and stable year in 2019, with slight growth in the smaller transactions segment. However, as a result of the Covid-19 pandemic, merger and acquisition activities are expected to decline by more than 30% in 2020. In addition, 60% of Belgian experts also expect a price drop of more than 10%. Liquidity problems in many companies could also cause the balance of power to shift, mainly putting buyers in a strong bargaining position. Finally, for the first time a question was asked about the expected impact of an acquisition on future employment. This impact appears to be positive across the board. These are the main conclusions of the seventh edition of the M&A Monitor, an annual survey of around 110 Belgian merger and acquisition specialists including corporate finance advisers, private equity investors, brokers, bankers and lawyers. The survey asks about their experiences in the M&A market and the deals they were involved in during 2019 on the one hand, and their expectations for 2020 on the other. In order to estimate these expectations correctly, an additional survey was sent out in the second half of March which specifically asked about the expected impact of the Covid-19 pandemic. The study was conducted by professor Mathieu Luypaert and researcher Gianni Spolverato of the Centre for Mergers, Acquisitions & Buyouts at Vlerick Business School in collaboration with Bank J.Van Breda & Co., BDO, NautaDutilh and Sowaccess.
    • Acquisitions: a curse or blessing for direct competitors? The impact of target ownership structure  

      Mataigne, Virginie; Luypaert, Mathieu; Manigart, Sophie (Journal of Corporate Finance, 2021)
      This study examines the impact of horizontal acquisition announcements on the value of direct competitors of the combined entity. We argue that the ownership structure of the target drives competitor wealth effects. First, the stronger disciplining force of the market for corporate control for public firms compared to private firms will lead to higher competitive pressure post-acquisition when a public firm is acquired, leading to more negative valuation effects of direct competitors. Second, acquisitions of subsidiary targets, compared to stand-alone targets, are expected to lead to stronger asset utilization improvements in the target, leading to more negative competitor returns. A unique hand-collected sample of 1,038 direct competitors of 228 horizontal acquisitions in Europe empirically supports these hypotheses. Alternative explanations, such as information asymmetry or empire-building, are rejected.
    • An empirical examination of financial reporting lags among small firms

      Van Caneghem, Tom; Van Uytbergen, Steve; Luypaert, Mathieu
      This paper studies how the presence of cross-border as opposed to domestic venture capital investors is associated with the growth of portfolio companies. For this purpose, we use a longitudinal research design and track sales, total assets and payroll expenses in 761 European technology companies from the year of initial venture capital investment up to seven years thereafter. Findings demonstrate how companies initially backed by domestic venture capital investors exhibit higher growth in the short term compared to companies backed by cross-border investors. In the medium term, companies initially backed by cross-border venture capital investors exhibit higher growth compared to companies backed by domestic investors. Finally, companies that are initially funded by a syndicate comprising both domestic and cross-border venture capital investors exhibit the highest growth. Overall, this study provides a more fine-grained understanding of the role that domestic and cross-border venture capital investors can play as their portfolio companies grow and thereby require different resources or capabilities over time.
    • Analyzing the financial statements of the world's largest retailer: Wal-Mart

      De Maeseneire, Wouter; Luypaert, Mathieu (2010)
      This case is intended for an introductory or main course on Financial Statement Analysis. It may also be useful within a Corporate Finance / Financial Management course. After a class on financial statements and liquidity, profitability and solvency ratios - and some brief examples discussed by the lecturer - students should be capable of making a financial analysis of Wal-Mart. Students can be asked to make this analysis in class, or to prepare the case outside the classroom, and to present it. Ideally, the case work is conducted in groups of 4 to 6 students, and it typically takes between 1 to 1.5 hours (for the analysis itself - obviously, drafting a written report or presentation is more time consuming). The Wal-Mart case is aimed at both undergraduate and graduate students, and for general management programmes / MBAs as well as finance students - obviously, for the latter group, a much more fine-grained analysis, extensive discussion and adequate linking among various financials and between the numbers and Wal-Mart's business is required. Evidently, the lecturer should highlight many more details in a class of finance students.
    • Antecedents of growth through mergers and acquisitions. Empirical results from Belgium

      Huyghebaert, Nancy; Luypaert, Mathieu (Journal of Business Research, 2010)
    • Antecedents of Time to Completion in Mergers and Acquisitions

      Luypaert, Mathieu; De Maeseneire, Wouter (Applied Economics Letters, 2015)
      Literature on mergers and acquisitions (M&As) performance and wealth effects is abundant. Yet, we know very little about the pre-completion stage, in particular about aspects such as the likelihood of deal closing and time to completion. Understanding the drivers of completion time is however important as prolonged deal duration is costly and postpones realizing synergy gains. In this article, we study the antecedents of deal duration for a sample of 1150 M&As between listed US companies during 1994-2011. Not surprisingly, deal complexity critically affects time to completion. Stock offers, deal hostility, mergers and larger deals are characterized by a lengthier acquisition duration. Strong and clear shareholder support accelerates deal completion, as does the likelihood of overpayment. Finally, experienced bidders succeed in more rapidly completing transactions, implying learning effects.
    • Antecendents of Growth through Mergers and Acquisitions. Empirical Results from Belgium

      Huyghebaert, Nancy; Luypaert, Mathieu (Journal of Business Research, 2010)
    • Can auditors mitigate information asymmetry in M&A's? An empirical analysis of the method of payment in belgian transactions

      Luypaert, Mathieu; Van Caneghem, Tom (Auditing: A Journal of Practice and Theory, 2014)
    • Delay in filing the financial statements: An empirical analysis among small firms

      Van Caneghem, Tom; Luypaert, Mathieu; Van Uytbergen, Steve (2014)
      We examine delay in filing the financial statements among a large sample of Belgian small firms and find that reporting delay is affected by demand for information (e.g., larger firms tend to report more quickly); specific reporting incentives (e.g., firms tend to delay the disclosure of unfavorable information); and the financial reporting “production process” (e.g., older firms tend to report quickly, which is consistent with a learning curve effect). We note that there is a subsample of early filers, for which the drivers of financial reporting timeliness are found to be different from those identified based on the full sample. Our results further indicate that extremely late filings are associated with lower financial statement quality. Importantly, about 31 percent of the financial statements in our sample are being filed late (i.e., after the legal deadline), but our results suggest that monetary sanctions could be an effective tool in order to ensure compliance with the imposed legal deadline.