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.
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.
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
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
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.
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.
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