2023 will be challenging but there will be opportunities for M&A transactions

Jurgis V. Oniunas, president of IMAP, the group to which the Basque firm IMAP Albia Capital belongs to and is ranked in the top 10 financial advisors for mid-market transactions according to the Refinitiv ranking, affirms that, "the most attractive sectors for the purchase of companies are food, health and energy".

The latest market analysis shows that the M&A sector is moving away from a scenario of low-cost financing and high valuations to one of rising inflation, rising interest rates, more selective investor appetite and generalize domino effects from the war in Ukraine. This backdrop of economic uncertainty has been exacerbated by the slowdown in GDP growth and decreasing but persistently high inflation, which in turn has led to a generalized decline in M&A activity. However, Jurgis V. Oniunas, president of IMAP, to which IMAP Albia Capital belongs, believes that the market will remain active and buyers will continue to look for opportunities. “Private equity has the money and should bring it to the market because there is limited time,” he explains.

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What is the current outlook for the M&A market?

We are in a very complicated moment because of high inflation and liquidity constraints, so market conditions are very challenging. Opportunities are becoming more limited because central banks are raising interest rates – the US Federal Reserve and the Bank of England have raised them by 0.75 points. This implies liquidity constraints and less money available for transactions. It is becoming more difficult for PE investors who seem to be waiting for better times, but at the same time have to invest their capita. It is a very complicated, uncertain and vulnerable market. And yet, there are the assets that these investors are looking to sell, even if it is not the best environment.

In this scenario, which are the most attractive sectors for the sale and purchase of companies?

We note that the trend is clearly directed towards consumer and staple products, such as food, health and services, and in the current inflationary context, the energy sector. This is explained by the fact that there will be a decrease in demand. Due to inflation, margins will be lower and this will greatly affect consumers' savings. The sectors linked to consumer needs are in a good position and this makes these companies attractive in the eyes of buyers.

Are there geographic areas that are of most interest to investors?

This is difficult to answer because for the first time this crisis will affect the whole world. China is an interesting market because it is a leading economy in the world and many countries depend commercially on it. Other countries do not seem well suited for M&A activity. For example, Australia, which is an economy based on natural resources, has little to offer. Europe is in a complicated situation. At IMAP we deal with the middle market, companies with a value of 500 million euros, and we think there will be interesting deals but there will be challenges along the way because finding financing is difficult.

What is the profile of the buyer of companies?

I would say that they are trying to access new customers and markets that they would not be able to access if they don't buy a company. There is also a typical buyer profile linked to investors who want to gain access to a particular product or technology. And in this particular contest, there are also opportunist buyers looking for companies that are well positioned in the market and have advance technology but are in a difficult economic situation.

Are Basque companies attractive in the M&A market?

Absolutely. They are companies that have the product, the technology and access to multinational clients.  The challenge they have faces has always been their size, because they are small companies and many operate as subsidiaries of large international industrial companies, such as Siemens. Many are managed traditionally, by the owner or the family itself, and do not have a large management structure. These companies need to grow to a larger size to be more attractive to financial investors.

More acquisitions or mergers?

Most transactions are concentrated on the sale and purchase of companies. At present, in the case of Spain, we are seeing there is more demand for the purchase than for the sale of companies because money is still relatively cheap and there is liquidity available, so many companies are trying to take advantage of the situation.

What is the sector's outlook for 2023?

It will be a difficult year but there will be opportunities. There will be underperforming companies that will not continue in business, the good ones will stay but the big and best positioned firms will grow and continue to look for new opportunities. These latter companies are the most attractive in the M&A market.

IMAP Albia Capital hosts IMAP’s global corporate conference in Bilbao

From November 3 to 5, IMAP, an international group dedicated to mergers and acquisitions and corporate operations, held its corporate meeting in the Biscayan capital, with the support of IMAP Albia Capital. More than a hundred specialist advisors from all over the world shared business ideas and exchanged perspectives regarding the M&A market. One of the highlights of the event was the presentation on 'The current economic situation, future prospects current economic situation, future prospects', given by the vice-president of the by Iñigo Fernández de Mesa, vice-president of the CEOE. There was also an opportunity for IMAP professionals to share their experiences on the transaction carried out during the last year, as well as a presentation by Fernando Cabos and Aitor Cayero, partners at IMAP Albia Capita, who spoke about the macroeconomic outlook and the current state of the art in corporate finance focused on M&A.