The majority of Dutch M&A professionals predicted an increase in deal volume in 2024 last year. It turned out to be a decrease of around 10 percent. "I have never seen so few potential deals come along as at the end of 2023, beginning of 2024."

Predicting market trends is an art in itself. M&A professionals don't seem to be very good at it. Last year, expectations were cautiously optimistic: the majority of Dutch M&A professionals predicted an increase in deal volume, with 12 percent predicting a strong increase (more than 10 percent) and 43 percent predicting a slight increase (between 2 and 10 percent). Only a quarter expected unchanged volume, while 20 percent expected a decline. Now, more than a year later, reality appears to be more difficult than expected.

Across Europe, deal volume declined from the end of 2023, resulting in a 10 percent decline for the year. This is evident, among other things, from research by private equity firm Argos Wityu. The third quarter League Tables of MenA showed an even more negative picture when it comes to deal value and deal volume:

Not everyone is gloomy about the past year. Jan-Hendrik Horsmeier, Partner at law firm Clifford Chance, offers a nuanced perspective on market dynamics: "It just depends on where you set the starting point. If I look at the Netherlands, the spring of 2024 was indeed relatively quiet, but in the past autumn it was very busy. In April you saw a sharp increase again. All in all, we have not had less work in the past four quarters than in the previous period. We are certainly not above ten percent, but not below two percent either. This means that the prediction at the time came true quite well."

Tim Boer, partner at corporate finance specialist AXECO, also notes that the first quarter of 2024 was quiet, but the market seems to be picking up since then."

But Horsmeier and Boer are exceptions. Overall, things were disappointing, and the deal volume really dropped.

“A lot of people in the M&A community tend to be positive and take an optimistic view on market prospects”, says Marc Habermehl, M&A Lawyer-Partner at law firm Stibbe. "These are people for whom the glass is quickly half full", agrees Tom Beltman, owner of takeover specialist Marktlink Mergers & Acquisitions.

Understandable and perhaps even admirable, this positive basic attitude. “But the factors that caused a slowdown in 2022 remained largely unchanged in 2023”, Habermehl notes. And so, the glass turned out to be less than half full in 2023-2024.

Limited economic growth, persistent inflationary pressure, high interest rates, and geopolitical tensions created an environment of uncertainty that significantly affected M&A activity.

Niek Kolkman, Partner and Head of Deals and Transaction Services at the accounting and advisory firm KPMG, notes: "Inflation has slowed but remains high. Although interest rates have stabilized and even decreased, this only happened recently – later than initially expected."

Moreover, the interest rate cuts by the Federal Reserve (FED) from September 2023 to September 2024 have, in the eyes of many dealmakers, been lower than hoped, meaning that the lower rates have only had a limited upward effect.

Philippe Craninx, Managing Partner at M&A specialist Moore Corporate Finance, shares a similar view. "According to last year's logic, the expectation was that interest rates would have to come down, leading to higher valuations and, consequently, more transactions. However, I believe that uncertainty has not left the market at all. Depending on where you look, inflation is still not fully or sufficiently under control. This uncertainty also applies to many sectors of the economy, and especially to the geopolitical situation."

The impact of political uncertainty is also highlighted by Kuif Klein Wassink and Ico Jalink, both Partners at law firm Dentons: "There was a lot of uncertainty in the market, partly due to elections that took place in important countries like India and Indonesia, as well as in several European nations, while the upcoming U.S. elections added to the uncertainty. This led to caution among dealmakers." The wars in Ukraine and the Middle East are also frequently mentioned.

One of the most prominent obstacles for M&A activity in 2023 was the persistent gap between the expectations of buyers and sellers. Sellers often based their asking price on historical data and optimistic growth forecasts, while buyers took a more cautious approach to their projections.

This discrepancy often led to prolonged negotiations. "Many deals even fell through due to differences in price expectations between buyers and sellers", says Niek Kolkman. He expresses hope that the recent interest rate drop and improved economic outlook will help narrow the gap between buyers and sellers. "That might lead to more deals in the coming year."

Sander Neeteson, Head of Corporate Finance at ABN AMRO bank, is not as optimistic. He points to the ongoing geopolitical unrest, which leads to uncertainty about future business performance: "Buyers are applying higher risk discounts, which widens the gap between asking and offering prices. Companies are struggling to provide clear forecasts in uncertain times, which is particularly problematic for private equity investors who often seek short-term returns."

An often-underestimated factor in M&A predictions was the cautious attitude of (especially) buyers and the resulting delay in transaction processes. This trend has been reinforced by the more cautious attitude of both buyers and sellers in the face of economic uncertainty.

Kuif Klein Wassink and Ico Jalink emphasize this point: "Many deals, especially complex deals such as carve-outs, also took longer than expected."

“Much more thorough diligence is being done”, Habermehl also sees, describing a significant shift in the approach to deals. "Buyers are also more often asking for exclusivity before incurring significant costs so that they can conduct thorough due diligence and negotiate the deal terms, instead of signing the deal on tight, accelerated timelines."

Richard Reis, Partner at private equity firm Argos Wityu, summarizes the mood in the market in two words: 'hesitation' and 'caution'.

Whatever the causes of the disappointing deal volume in 2023-2024, the consequences will be felt in the near future. After all, fewer deals mean fewer exits, and fewer exits means less money to reinvest. And many of the threats that plagued the market in 2023-2024 are likely to materialize in the coming months. On the other hand, there is plenty of money waiting to be invested, especially with private equity parties. And the lower interest rates in particular may provide just the push the M&A market needs to revive.

Tim Boer even thinks that 'all signals for a further revival of the market are green'. He speaks of a 'delayed movement': the revival predicted in last year's trend research has not yet occurred, but that is only a matter of time. The underlying trends indicate that this revival will come.

It will not be due to the enthusiasm of the dealmakers. The glass remains half full even in uncertain times. "We also said that in last year's preview", acknowledges Tom Beltman. "We may have been wrong then, but it will really be true in the coming year."