4 minute read 14 Nov 2019
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Why slower economic growth in Belgium hasn’t had an impact on M&A deals

By

Marc Cosaert

EY Belgium M&A Partner

Passionate about entrepreneurship, growth and M&A. Dedicated husband and father. Loves mountain biking.

4 minute read 14 Nov 2019

What stands out from the Global Capital Confidence Barometer?

In the EY Global Capital Confidence Barometer, EY Transactions Advisory Services annually asks hundreds of companies from various sectors about their economic forecasts and interest in future M&A deals. A new edition of this survey was published in October 2019. What stands out from the answers?

Fundamental impact

Geopolitical and financial factors have a fundamental impact on the business plans for company managers. As part of the Global Capital Confidence Barometer, we seek answers to the following questions:

  • What are companies doing with their funds in times of economic growth or recession?
  • How do they raise capital for new investments and/or mergers and acquisitions?
  • How do companies prepare themselves against financial setbacks?

From the most recent issue of this survey, we have drawn the following conclusions which apply to Belgium.

No current threat of recession

We can see that, in Q3, the economy in Belgium has not grown quite as fast as it did in the previous quarters. Companies are becoming more cautious and are focusing on their core activities, are more careful when making investments and are setting funds aside as a buffer against financial setbacks.

But there is no question of any (imminent) recession on the Belgian market. Despite the slowdown, various sectors are still experiencing some growth and the current rate of growth is 1.2%.

If we make the connection with M&A deals, it becomes evident that Belgian companies have become more critical when considering mergers and acquisitions. As already noted, the focus is on the core business rather than scouting for new opportunities and markets.

The Belgian economy is not growing as fast as it used to compared to previous years. But there is no question of any (imminent) recession on the Belgian market. EY notes the presence of some growth in various sectors.

Technological disruptions and acquisitions

New technologies – encompassing Artificial Intelligence, Data Analytics, IoT, Robotics, Virtual Reality and Augmented Reality – are fertile ground in the commercial world for new business models which overturn the old models, even for market leaders. What (digital) investments must businesses now make to be ready when new megatrends emerge?

Mergers and acquisitions can help your company gain market share in your core activities and can also make you nimble and ready to face new trends. But you could also opt, for example, for asset swaps (swapping your non-core activities for non-core activities of other companies that fit within yours). The creation of an ecosystem with start-ups and scale-ups fits in with the current trend where many companies do not have enough staff trained in new technology.

War for talent in digitally skilled employees

Because of the current digital revolution, organizations (both in the private and the public sector) will have to change their approach in terms of HR, hiring, training and the personal development of their employees.

The future belongs to those employees who have the skills to work with digital systems. But they are far and few between on the labour market, which leads to a growing war for talent between companies.

Corporations (usually) focus on projects over the longer term and want to create valuable synergies and economics of scale via M&A deals. That way, they seek to build and consolidate a strong, competitive position.

Rat race to great M&A deals

Over the last year, we have noticed that Belgian companies still have the drive to find great M&A deals. But it is worth pointing out that this trend is less obvious compared to 2018. But the underlying fundamentals remain positive.

Furthermore – and we find this more concerning – a rat race is noticeable for the best deals. There is currently a fight between private equity-companies and corporate businesses looking for interesting acquisitions, each with their own focus and interests.

Private equity companies have large capital reserves available to them, and they can add bank loans to them as well. This puts them in pole position when it comes to M&A. They are keen to grow their portfolios of companies as much as possible, either through organic growth or in combination with M&A (Buy & Build).

Industrial companies, on the other hand, have a different business model. They focus (usually) on projects over the longer term and want to create valuable synergies and economics of scale via M&A deals. That way, they seek to build and consolidate a strong, competitive position.

What recommendations can be taken from the survey?

The Global Capital Confidence Barometer sets out the following recommendations for the completion of better M&A deals:

1The creation of extra value via M&A deals should not just make shareholders happy. Companies must also have reserves to stay nimble and to plan for various scenarios in times of economic turbulence. They must also (dare to) keep a dialogue with all the stakeholders in their company, from employees to consumers.

2Taking an ecosystem approach can provide a company with valuable results. The open nature of such an ecosystem allows you, as a business, to create maximum value, certainly if you allow the involvement of start-ups and scale-ups in this exercise. Learning from each other and being open to input from the outside is enriching.

3

Finding the right strategy for digital transformation should not be an optional assignment but should be an integral and reoccurring item on the Board’s agenda. That is the only way for a company to get the most out of the opportunities for growth.

4

Is your company sufficiently prepared against uncertainties around geopolitics, trade tariffs and trade agreements? The imminent Brexit is an obvious example but reviewing internal supply chain management processes can also ensure maximum risk management.

5Last but not least: in M&A deals, it is sometimes easy as a buyer to act too quickly. It may be prudent to leave the negotiating table (for a while). Good judgement and timing can make or break an M&A deal.

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Summary

According to the EY Global Capital Confidence Barometer, the third quarter saw slower economic growth on the Belgian market. In light of global economic developments, companies are focusing on their core activities. But there are no signs of a recession on the Belgian market. Companies would do well to make new M&A deals, as this strengthens their position in case of newly emerging megatrends

About this article

By

Marc Cosaert

EY Belgium M&A Partner

Passionate about entrepreneurship, growth and M&A. Dedicated husband and father. Loves mountain biking.