Insights from Michael Van Eenoo (ING): Forecasting the M&A landscape and opportunities for 2024

In an exclusive interview, Michael Van Eenoo, Head of Corporate Finance at ING Belgium since 2013, shares his perspectives on the anticipated trends and challenges within the Belgian mergers and acquisitions (M&A) realm for the year 2024. With a keen eye on market dynamics and a wealth of experience in financial strategy, Van Eenoo delves into the multifaceted aspects of the M&A landscape. He offers invaluable insights into sectors poised for growth, international collaboration strategies, the evolving role of private equity and the burgeoning significance of sustainability considerations. As Belgium gears up for potential M&A opportunities, Van Eenoo’s observations shed light on the avenues for success in navigating this dynamic environment.

What is your outlook for the year 2024?
“Perhaps it is not unimportant to outline the general framework. First of all, the prospect of interest rate cuts – and let me stick to prospect – will have an enormous impact on our market. However, recent geopolitical events do not help the M&A landscape in Europe especially. But despite this, we still have a number of parameters that are overall quite positive regarding the M&A market. And that is primarily that the economies in which we are active, and first and foremost of course the Belgian economy, have shown to be quite resilient. There was economic growth and the vast majority of companies do have solid results and strong balance sheets, which in itself is a relatively healthy basis to work from when you think about strategic steps. If you combine that with the fact that inflation is almost under control and that private equity is sitting on enormous amounts of dry powder worldwide, we are in a positive position in the M&A market for the coming period.”

So the prospects for M&A this year are a bit more positive than the past two years. What does that mean for the Corporate Finance team at ING Belgium?
“The prospects are indeed more positive. Still for us, 2023 was an extremely good year, because we were able to supervise a number of very visible transactions, including the Mydibel transaction (a mega-deal in the potato industry: Assisted by the Belgian-Dutch Corporate Finance team of ING, the Mylle family and the Walloon investment company Wallone Entreprende sold Mydibel, a global player in the potato industry, to their West Flemish counterpart Clarebout). But our broader pipeline is well filled for 2024 with both larger and smaller transactions. It really varies from the sale of SMEs to strategic transactions of several hundred million euros to private equity deals. So, I am very positive about everything regarding 2024.”

Last year you had the Mydibel transaction. Have there been any other interesting deals for ING Belgium?
“Besides Mydibel, the most visible transaction we did last year was the creation of the joint venture between Fluvius and Telenet, which has been an extremely important and visible deal for the Belgian market. It was a deal that took some time, was extremely complex, but was simply fundamental for the rollout of fiber optic networks in the Flemish market.”

In what sectors do you expect to see the most M&A activity?
“Of course we cannot be blind to reality. It is not the same story in all sectors and the spread is large. What I mean by that is that everything concerning the energy transition, technology or banking services, we see a high level of extremely healthy deal activity and very attractive valuations. Other sectors with a strong pipeline are Telecom and Food & Agri. On the other hand, you’ll not be surprised to hear, there’s not much happening in sectors like retail and building materials at the moment. So, we see fundamentally different speeds, structures and valuations in the current market.”

And bank services? What kind of transactions are we mainly seeing?
“In recent years we have seen that companies and new technologies and digitization initiatives have emerged in all segments of the financial sector. There you see that banks themselves are now going to make those acquisitions and buy those platforms. That’s one development. Secondly, we also see that in everything that has to do with financial services, whether it concerns insurance agents or audit platforms, parties are busy creating platforms for different segments and buying up agencies. Those roll-ups are happening quite quickly at the moment.”

In the field of cross-border deals, what are the major trends in the Belgian market?
“I think you see a very clear evolution here. The vast majority of entrepreneurs we speak to have a very clear focus on everything that is the US. That’s not to say they’re all going to do it, but many entrepreneurs talk about investing or doing acquisitions in the US. This is mainly driven by both the regulatory environment and the financial environment in the US, which is viewed more positively in that regard than in continental Europe and with a pronounced caution for everything to do with Asia. India remains a big question mark despite the fact that everyone sees the opportunity of the underlying economy, but the structure of the country does not make it all that simple. So, there is a very clear focus on the US across all sectors: technology, food, chemicals and so on.”

And how do you work together internationally within ING to help customers with that?
“At ING Corporate Finance, our strategy is fully aligned with what we see happening in the market and that results in the fact that we are currently also investing on an ING scale in regions such as the US. We have recruited people within specific sector teams to assist our European clients in the US in all areas of Corporate Finance. Our services are fully aligned with the sectors where we see significant activity. That includes everything to do with energy transition, sustainability, food & agri and other sectors with a high potential for growth.”

Private equity didn’t have an easy time in 2022 and 2023, given that the banks were more reluctant to provide financing and the interest rates dramatically increased. What does that mean for this year? What are the biggest challenges for investors?
“Private equity faces a number of challenges. Let’s start with the fact that there are many private equity firms that have recently managed to raise significant amounts of money from their LPs. That money must be put to work and in the short term too. So, there is certainly pressure from private equity to do transactions. This can be in the expansion of existing platforms, but the first challenge is to find primary deals today. Second, the banks and debt funds are open, so the financing challenge is largely behind us. But private equity must consider a fundamentally different financing cost than some time ago. And in addition, the depth of the market, and I refer mainly to the multiple in debts that can be raised, may be slightly lower today than some time ago.”

In recent years there has been a rise in debt funds. How has that impacted the Belgian markets?
“The direct lenders definitely found their way into Belgium, an increasing number of transactions are financed by debt funds. There are some transactions for which traditional bank financing is not available. The transaction size is very relevant. There are transactions that can still be financed by local banks or where you do a club deal between the major Belgian banks. You then have the transactions for which you need the major international banks. But of course, you also have the deals where the debt funds clearly take the place of the local banks. There is certainly a shift there. That is a very clear trend.”

Besides financing, it could be a problem for PE investors that there were relatively few exits last year. Is that something that concerns them?
“I see this more as an opportunity. Because yes, exits have been postponed for various reasons, so if it is indeed confirmed that long-term interest rates are falling, that geopolitical conditions are stabilizing, that the financial markets in general will be more stable, then I see a lot of private equity coming to the market with postponed transactions. And I have more than the impression, based on what we see and hear from our colleagues within the big four, the large legal firms and the main due diligence providers, that this is already the case. There has definitely been an increase in activity in recent weeks and months.”

Are there any other challenges private equity investors are facing in the Belgian mergers and acquisitions market?
“An interesting development is that today, in contrast to the recent past, private equity is receiving slightly more resistance from trade buyers. Trade buyers with solid balance sheets show a willingness today to go the extra mile to pay the price and compete with private equity.”

There is a lot of attention on ESG in recent years. What does that mean for ING?
“When we talk about processes, without a doubt, ESG has become an extremely important factor. But I am going to cut it short and state that within M&A processes, the focus today is really on everything that is sustainability, i.e. climate, energy transition, biodiversity, etc. It is not that the ‘S’ and ‘G’ are not considered important, but it is very clear that core attention is on sustainability. Every company, every sector encounters it. Private equity will look at it in line with the expectations of its LPs and its financing banks. The importance of sustainability and by extension ESG at banks is increasing. As a reputed private equity player, even as a large family business, you cannot ignore this any longer. The reputational damage to the company towards all its stakeholders, whether they are customers or suppliers or employees, by taking a broad turn is simply no longer accepted.”

What are the biggest opportunities for the Belgian business community to have a successful M&A year in 2024?
“I am convinced that a successful M&A year will depend on circumstances remaining somewhat like today i.e. that the geopolitical environment remains more or less stable, that long-term interest rates will go down, that the financial markets will remain stable. For the vast majority of Belgian companies with ambitions to grow externally and having the financial strength, they will find support from their banking partners and, if needed, from external capital.

Read also: Jan Alexander, BVA: Societal challenges and lower valuations create opportunities for private equity