European M&A market showed resilience and adaptability in 2023 amidst challenging global conditions, according to the latest annual European M&A study by global law firm CMS.

The study offers an in-depth analysis of a record 559 deals CMS advised on throughout 2023. The high number of completed deals is a testament to CMS's strength in the market, despite the well-documented general downturn in deal activity across the globe. The study also reveals, despite the complex macroeconomic environment, a robust pipeline of deals for 2024. This is underpinned by a gradual stabilisation in the market, with lower interest rates and lower inflation.

Key Findings and Takeaways

The key findings of the CMS European M&A Study are:

  • Sustained Deal Activity
    Despite geopolitical tensions and economic challenges, 2023 witnessed a resilient M&A market, with CMS advising on a record number of deals. This resilience signals a promising outlook for 2024.
  • Pricing Structures Shift
    There was a notable decrease in purchase price adjustments (PPAs) and earn-outs, suggesting a move towards more stable and predictable deal structures. This trend suggests increasing confidence in valuation accuracy and financial stability. However, the reduced use of locked box structures in smaller transactions indicates lingering uncertainty regarding pricing.
  • ESG Still Emerging
    While specific ESG due diligence has seen an uptick, rising to 47% from last year's 33%, the incorporation of ESG factors into deal structures remains modest. This is expected to grow as regulatory and reputational pressures increase.
  • Rise in Strategic Investments
    A significant number of strategic investors, both as buyers and sellers, reshape their business portfolios in response to evolving market conditions.
  • Risk Allocation
    The standard limitation period for operational warranties, although reducing, remains between 12 to 24 months across most transactions, with liability caps below 50% of the purchase price being seen in the majority of cases, maintaining consistency with previous years.
  • W&I Insurance Stability
    The utilisation of Warranty & Indemnity insurance in European deals, particularly in the larger transactions, has stayed consistent with 2022 levels, with the UK leading in its use.
  • Geopolitical and Economic Factors
    The Study acknowledges the ongoing impact of geopolitical tensions and economic uncertainties on deal-making but also points to recovering confidence in the debt markets and potential boosts from election cycles.

Louise Wallace, Global Head of the CMS Corporate/M&A Group, said: "The insights from this year's Study not only highlight the resilience of the European M&A market but also point towards interesting and evolving trends that will shape the future of deal-making."

Roman Tarlavski, Partner Corporate/M&A at CMS in Amsterdam, said: "We have had an extremely busy 2023 working on an increasing number of robust transactions across a variety of sectors. Some of the deal terms analysed in this year's study, in conjunction with economic and market indicators, suggest a further recovery of M&A activity in 2024."

Read the full CMS European M&A Study 2024 here: CMS European M&A Study 2024: Market Trends & Insights

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