Over 130 IMAP M&A advisors from 25 countries joined forces this weekend to share global market insights into the current geopolitical situation following the war on Ukraine and how this is affecting the M&A dealmaking landscape.
While it’s still too early to ascertain the full extent of the mid to long-term effects of the war on the M&A markets, the overall feeling between the IMAP partners was positive and though inflation is triggering rising rates, it appears to have had little impact so far on the markets, according to Kris Kippers, from Degroof Petercam – IMAP France. He also commented that “When valuations at the stock market are getting low, PE might come to the rescue as they currently have burning cash in their hands and want to spend it, certainly with the inflationary environment we’re in”, hence they are advising their clients to be prepared and look to companies with real spending power.
This opinion was shared by Axel Fuhri Snethlage from IMAP Netherlands, who said“With a high level of capital in the market, no yield and the stock market volatile, the middle-market is attractive to PE in order to secure stability, therefore, we are expecting lots of PE activity.”
Meanwhile, in the USA Consumer market at least, according to Kenneth Wasik from Capstone Partners – IMAP USA, “Middle-market in the US is a laggard indicator to the world economy, having less exposure to international sales. However, we are seeing buyers becoming more concerned with impacts of macro conditions on consumer targets in the US. Specifically, how their businesses are affected by supply chain disruptions, inflationary pressure, and the lapping of a COVID year in year over year comparisons. Higher Gross Margins businesses are being prioritized by buyers. The thought being that higher gross margin businesses are better positioned to counter these negative trends.”
Carsten Lehmann from IMAP Germany said: “The outcome of the war is uncertain and may still lead to greater economic turmoil. This leads to some hesitancy of equity and debt investors in the short term, but it will not change the trend for increasingly more deals in private markets with companies changing hands more quickly than they used to. Furthermore, as we do not expect interest rates to keep up with inflation rates, investment flows into real value assets will remain strong. The sectors largely unaffected by the geopolitical reshuffling like IT / Software, Healthcare and Consumer Goods will gain in relative attractiveness which should support valuation levels.”. Piotr Chudzik from Trigon Investment Banking – IMAP Poland and a country on the frontline added: “Our investors in general are telling us that they are already looking at the shape of their business in Central Europe after the war in Ukraine and trying to adapt their strategies accordingly”.
Looking at countries potentially likely to benefit, Gonçalo Vaz Botelho from Invest Corporate Finance, IMAP Portugal, believes that “LATAM with its population and growth, along with affordable energy has the resource as a large sustainable economy to be independent. Likewise, Spain and Portugal, which are not reliant on natural gas, and use mainly renewable energy have the best logistic platforms from Southern and Northern Atlantic movements and are also highly advanced in digital technologies and telecommunications.
Overall, the comments from around the globe were cautiously optimistic, although Egypt, according to Khaled El Ghannam, from Intelligent Way Capital Partners – IMAP Egypt, is suffering on several fronts – Russian and Ukrainian tourism, a major source of forex earnings, has collapsed, and together with huge increases in the prices of wheat, cooking oil and petroleum, this has led to a devaluation of the Egyptian pound against the US dollar of around 18%.
Looking at the broad trends which are expected to continue to drive acquisitions, regardless of the volatile situation in the Ukraine, tailwinds, restructuring and succession were discussed, and Krisztián Orbán, Founder and Managing Partner of Oriens and Guest Speaker at IMAP’s Geopolitical Panel session, outlined additional short-term factors including: “relocation, inter-regional trade and supply chain, markets switching from China to the West, vertical integration to secure supply, energy transition with a drive towards green energy, and digitalization and automation”.
Jurgis V. Oniunas, IMAP Chairman, said: “As with any disruption, there are always opportunities for M&A, but the trick is to differentiate between short-term disruption and long-term fundamental change. During this, our second new normal conference, we had the chance to discuss geopolitical, economic, and sector-specific issues in depth with our partners from all around the world, many of whom we hadn’t met in person since the end of 2019, and we go into the next few quarters invigorated with new ideas and new deal opportunities.”