Sunshine is on the horizon for Belgian M&A market

In short
• The Belgian M&A market experienced a significant decline in 2023, with 2 out of 3 respondents reporting fewer transactions and 45 percent noting a drop of over 10 percent.
• 81 percent of M&A experts anticipate a rebound in 2024, especially for large transactions, fueled by abundant financial resources and expected interest rate cuts.
• The average EV/EBITDA multiple for acquisitions decreased to 6.4 in 2023, largely due to higher debt financing costs.
• The importance of ESG in M&A has surged, with 84 percent of financial investors now integrating ESG criteria, up from 38 percent in 2022.
• Data analytics, while recognized for its benefits in operational efficiency and decision support, is primarily used in the early stages of the M&A process, like target screening, with limited proficiency among most M&A experts.

Introduction
The 2024 M&A Monitor provides a comprehensive overview of the Belgian mergers and acquisitions (M&A) landscape based on insights from 138 Belgian M&A experts surveyed between January 29 and March 8, 2024. The report, prepared by Mathieu Luypaert, Sarah Muller, and Tom Floru from Vlerick Business School, covers the evolution of the Belgian M&A market, deal characteristics, financing trends, and emerging themes such as ESG and data analytics.

Belgian M&A market trends
The Belgian M&A market experienced a significant slowdown in 2023, aligning with global trends where deal volumes dropped by 17 percent to 2.9 trillion dollars. Approximately two-thirds of surveyed experts reported a decrease in the number of transactions, with nearly half noting a decline exceeding 10 percent. This downturn was most pronounced in larger deals and private equity transactions.

The technology sector, in particular, saw reduced activity due to market uncertainty and challenging financing conditions. Despite these challenges, there is optimism for 2024, with 81 percent of respondents not expecting the downward trend to continue and 75 percent of experts in the large transaction segment anticipating increased activity.

Deal characteristics and valuation
In 2023, targets were acquired at an average EV/EBITDA multiple of 6.4, slightly down from 6.7 in 2022. This decrease was primarily driven by the mid-sized deal segment (€5-€20 million). The average leverage in acquisition financing was 3.2 times EBITDA, with senior debt carrying an average interest rate of 4.7 percent.

Industry-specific multiples varied, with technology (9.2) and pharmaceuticals (8.9) sectors achieving the highest multiples, reflecting their growth potential and innovation-driven nature. Traditional sectors like industrial products and consumer goods had lower multiples, indicative of their capital-intensive and lower-growth profiles.

Financing trends
Debt financing remains a crucial component of M&A deals, with the average net financial debt to EBITDA ratio stable at 3.2, except for larger deals where it averaged 4.0. Interest rates for senior debt were around 4.7% in 2023. Financial buyers, particularly private equity firms, tend to finance a higher proportion of deals with debt (54%) compared to strategic buyers (49%).

The use of vendor loans increased in smaller deals (<€1 million) and mid-sized deals (€5-€20 million), reflecting rising interest rates and the need for more flexible financing structures. Earnouts and vendor loans remained stable overall but saw increased use in specific deal segments, particularly the smallest and largest deals.

ESG in M&A
Environmental, Social, and Governance (ESG) factors have become increasingly significant in M&A transactions. 84 percent of financial investors now include ESG in their investment policies, a substantial increase from 38 percent two years ago. ESG considerations are most crucial during the acquisition strategy development and target screening phases but less integrated into post-merger integration and contract drafting.

Formal ESG due diligence was conducted in about 19 percent of deals, with larger transactions more likely to incorporate ESG criteria. This trend underscores the growing recognition of ESG as a driver of value creation and risk mitigation in M&A activities.

Data analytics and AI in M&A
Data analytics and AI technologies are gaining traction in the M&A process, particularly in the initial stages such as target screening and due diligence. These tools help acquirers identify industry trends, scrutinize financials, and pinpoint potential synergies, thereby enhancing operational efficiency and decision support.

While 80 percent of M&A experts are familiar with data analytics, most possess only a modest level of proficiency. Challenges include limited access to relevant data sources, data quality issues, and a shortage of specialized skills in data science and statistical analysis.

Outlook for 2024
The M&A landscape in Belgium is expected to improve in 2024, with half of the respondents anticipating increased transaction volumes. Optimism is especially high for large deals, driven by abundant dry powder among financial buyers and anticipated interest rate cuts. This positive outlook is tempered by ongoing geopolitical uncertainties and macroeconomic challenges.

In conclusion, the 2024 M&A Monitor highlights a challenging yet hopeful environment for M&A in Belgium. While 2023 saw a significant decline in activity, particularly in large deals and the technology sector, there is a strong expectation of recovery in 2024. The increasing importance of ESG factors and the potential of data analytics to enhance the M&A process are key themes shaping the future landscape.

ABOUT THE CENTRE FOR MERGERS, ACQUISITIONS AND BUYOUTS
Vlerick Business School’s Centre for Mergers, Acquisitions and Buyouts develops and disseminates knowledge concerning best practices in the entire M&A field − from deal origination to completion, from financing to integration. The Centre reaches out to key decision-makers and influencers in an M&A process as well as to professional advisors and intermediaries. Its activities are supported by Bank Van Breda, BDO, Van Olmen & Wynant and Wallonie Entreprendre.