10 major insights from the Deloitte Belgian M&A Predictions 2024

Deloitte recently released the ‘Belgian M&A Predictions 2024’, an extensive report with insights about the Belgian dealmarket the coming year. MandA discussed the finding with two experts from Deloitte’s M&A team: Koen Clukkers (M&A Lead) and Sebastiaan Preckler (Head of Debt & Capital Advisory).

1). What are the current most important trends in the Belgian M&A market?
Koen Clukkers: “As you saw in the outlook, we are actually optimistic. As is well known, 2023 was not a peak year in terms of M&A. A number of circumstances led to this. You have the entire geopolitical context and of course you have an economic context that has been difficult due to high inflation and interest rate increases. These elements have led to quite a lot of uncertainty in the markets, which in turn has led to lower deal volume. At the same time, we saw that a certain expectation gap has arisen between what sellers expect to receive based on the high multiples of previous years and, on the other hand, the uncertainty and higher financing costs among potential buyers.”

2). What kind of M&A year do you expect 2024 to be in terms of deal volumes?
Sebastiaan Preckler: “Economic growth in Belgium remains relatively stable if you compare it with neighboring countries, and inflation is moderate. Although political and economic uncertainties persist, we expect the European Central Bank to cut interest rates, which should strengthen confidence in M&A. We therefore expect an increase in transactions and an adjusted price forecast for the coming year. The growing focus on AI, data analytics and sustainability will boost certain sectors. But the environment remains complex, with concerns about elections and trade wars.”

3). Which external factors can potentially have the greatest impact on M&A?
Koen Clukkers: “Geopolitical events, such as unexpected conflicts, have a cascading effect on supply chains and energy prices, which can cause higher inflation. Elections worldwide are also important for the global economy.”

Sebastiaan Preckler: “Political stability and confidence in the economic climate are crucial for investments in Belgium. Uncertainties can complicate dealmaking, but companies do adapt to volatility. We have been able to observe this in recent years.”

4). What are the main drivers for investors and companies to make deals?
Koen Clukkers: “The Belgian market is a specific market that is mainly characterized by mid-sized transactions. These transactions are slightly less dependent on economic conditions than the mega deals. Succession obviously remains an important topic in the Belgian market and continues to generate transactions. We have also briefly touched on the megatrends that are in play, especially sustainability and technology. An evolution that we have seen more and more in recent years is that tech as a sector has become a cross-industry. There is food tech, fintech, medtech, etc. You see that technology is becoming an important asset in many different sectors and that more and more companies are looking outside their own traditional sector for these types of alternative M&A opportunities. Over the past year, a number of corporations and private equity firms have prepared to transact there. We also expect that there will be an increase in the number of carve-outs from corporates.”

5). What do you expect from private equity investors in 2024?
Koen Clukkers: “Private equity is sitting on a huge amount of capital that they have to invest. 2023 has been a weaker year for private equity in terms of transaction volume, which also gives them an extra push to invest this year. We also see a very strong increase in competitiveness in transactions. And we are not only talking about Belgian funds that want to deploy capital, but also more and more foreign funds that are looking at the Belgian market. So that is also an element that will have an impact in 2024.”

Sebastiaan Preckler: “Given the amount of dry powder, you will get a supply and demand dynamic that will increase competitiveness for good assets. In short, there will be a battle for assets that meet all those requirements: ESG sustainability, resilient business models and buy & build opportunities. Due to this increased competition, we expect to see more preemptive strategies to steal transactions prematurely from under the noses of others. From a dealmaking perspective, that brings complexity. You really have to be prepared for that. Our expectation is that when you look at possible exits of portfolio companies from PEs, they will go more towards strategic buyers rather than other PEs. This has to do with the fact that valuations have come under pressure and that corporates can deliver certain synergies that private equity firms find more difficult to deliver. We previously saw this trend in the US and it is expected that we will also see this in Belgium.”

6). ESG has been emerging as a very important factor in deals for years; How do you expect ESG to develop further in the coming years?
Sebastiaan Preckler: “It is not new, but ESG as a driver is increasing in strength. It will be crucial and impactful on valuations and both financiers and buyers are watching this with a lot of attention. Can the company be taken into the future? And that is a trend that you see not only among corporates, but certainly also among private equity parties. They have to deal with more ESG requirements from their LPs. This of course translates effectively into dealmaking on the ground. Companies that comply with this will generate more interest. And for companies that are not ESG compliant, this will probably have an impact on the valuation, because a conversion will have to take place to comply with certain regulations and to make the business model ESG-proof.”

7). What trends do you see in deal financing?
Sebastiaan Preckler: “In a Belgian context, in the mid-market where you need, say, between 50 and 100 million in debt, you can very well turn to the Belgian banks. We have strong banks, that are open to financing. Of course, they have become a little more conservative on structuring, because interest costs have become higher, so they wish to deploy a little less leverage on such a transaction. But in general they are still very willing to finance good transactions.

On the other hand, we also see the growth of private debt, non-bank financing, which is increasingly coming to the fore in Belgium. Of course, over the last 12 to 18 months it had become relatively expensive as underlying base interest rates had risen. But we see a compression there this year. On the one hand, because the cost price of the private debt funds has gone down a bit and on the other hand, there is also the expectation that the base interest rate will go down in the future. That makes private debt slightly more attractive, especially for private equity firms that want to implement aggressive growth strategies. Then that private debt structure is sometimes very attractive because they can join private equity as a partner with a relatively higher debt ratio.

What both banks and private debt funds are doing is, on the one hand, debt financing, so how many times EBITDA do they want to invest in a company in terms of financing? But even more important today is what we call debt service capacity. What is the capacity of a business to finance the repayment and interest of a financing structure from its cash flow? This attention has of course come because those costs have become significantly higher. And they will probably remain higher; that is really the new normal that we have now. So it is important that the debt becomes bearable and that you do not end up in a situation where your financing actually puts pressure on the business model and limits the strategy.”

8). You write in the report that due diligence has become more important than ever. How do you notice that?
Koen Clukkers: “If you look historically, companies are mainly viewed through due diligence in the areas of financial, tax and legal. But given the increased complexity and all the megatrends at play, we also see a very strong broadening of the type of due diligence that takes place. Much more attention is being paid to operational aspects, commercial facets, as well as ESG, cyber, tech and IT. In each of these domains we look at how we can assess the risks as well as the potential upsides as much as possible and separate the risks because they can each potentially have a significant impact on the acquired company. What we also see is that it is increasingly becoming a trend to cover the resulting risks in an appropriate manner. For example, through W&I insurance. We now see this in almost every transaction.”

9). What is the impact of new technologies, such as AI, on the M&A landscape?
Koen Clukkers: “On the one hand, we see that this also provides opportunities. Parties are working on portfolio rationalization, making their business model future-proof. This is certainly an element that will create additional deal volume. It is also playing an increasingly important role in the M&A work itself. Today we are also experimenting with AI at Deloitte and how we can use it in an M&A context. By using AI and data analytics tools, we can gain many more insights and conduct a much more in-depth analysis than the traditional way. We see that today a lot of the transactional work we do has a data analytics component.”

Sebastiaan Preckler: “But we also see changes pre-deal through the use of AI. When you look at M&A strategies, both at corporates and at private equity, where people are often looking for smaller add-on transactions because of scale, data analytics and AI are also involved. We have built a tool for this ourselves, which we call M&A Sensing, which is actually a very comprehensive form of data gathering and analytics combined with AI to provide insights in certain sectors into certain possible assets or companies that somewhere give a certain signal that they might be involved in an M&A transaction. That is the propensity to transact that we are trying to map out.”

10). Are there any other trends that can be mentioned?
Koen Clukkers: “We are seeing an increase in alternative forms of M&A. If you traditionally look at M&A, everyone talks about acquisitions or mergers, but here too we see more alternatives, such as setting up partnerships, joint ventures and other forms. The earn-out factor, which is of course already recurring, but is still gaining importance in discussions, so alternative forms of M&A are also increasing given the current context.”

The ‘Belgian M&A Predictions 2024’ report discusses the most important trends and predictions per investment theme. You can find the report here.

Koen Clukkers

Koen Clukkers is a Partner in the Financial Advisory practice, currently leading the Belgian M&A Transaction Services team. Moreover, he serves as the End-to-End (E2E) M&A Lead for Deloitte Belgium.

Sebastiaan Preckler

Sebastiaan Preckler is a Partner within Financial Advisory and responsible for Debt & Capital Advisory in Belgium.

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