Oversold price expectations, the importance of being ESG-proof and why a pre-exit is preferable to a full acquisition. A conversation with three investors about the latest trends and developments in the acquisition market. 'The pipeline is a lot better filled than it was six months ago.'
Joining us at the table are three private equity investors: Bernhard CoppensMKB Fonds), Daan FreriksCommitted Capital) and Robert Falk(Bencis), all three working at private equity firms whose investments focus on SME businesses with operating results of between €1 million and €50 million. But that's pretty much where the comparison ends. Because while Coppens and Freriks focus mainly on deals at the bottom end of the SME market, Falk concentrates mainly on investing in larger businesses in the SME sector.
Over the past year, investors have also seen another slew of propositions pass by. But they rejected many of them because they felt that the price expectations of entrepreneurs were often too high. Because on this, the investors do agree: the year 2024 will certainly not go down in the books as one of the best years ever for the M&A market.
That the takeover market faltered in 2024 was partly because entrepreneurs often had excessive price expectations, while meanwhile margins were under pressure due to rising operating costs. And that in turn led to entrepreneurs often failing to live up to all those lofty expectations. Says Falk, "Entrepreneurs often saw 2022 and 2023 as the new baseline for profitability, but it has since become apparent that these expectations were not sustainable.
The year is almost behind us. How do you look back on the takeover market in 2024?
Coppens: 'The first half of 2024 was difficult. The supply of deals was not only limited in quantity, but also the quality left much to be desired. Many businesses saw pressure on their profitability, mainly due to stagnant revenue, higher operating costs due to inflation and rising personnel costs. Fortunately, we see a slight improvement in the acquisition market again in the second half of 2024.'
Freriks: "We too realized pretty quickly in early 2024 that the M&A market was cooling. But actually you already saw that at the end of 2023, when sellers were laying down a very ambitious EBITDA in processes. No one had any idea at that point what the new normal was. For example, what was normal in the supply chain in terms of costs. Nobody had any idea about that anymore, which meant that in the third quarter of 2023 you were suddenly faced with very disappointing results. As a result, expectations for 2024 were then already somewhat tempered.'
Falk: "You saw that in late 2023 and early 2024 there were often very high price expectations among sellers. It is only now actually percolating that 2022 and 2023 were perhaps abnormally good years in which many businesses benefited from implemented price increases, while the costs of raw materials, other materials and logistics normalized. This cocktail led to exceptionally high margins that in many cases proved unsustainable. With dire consequences for the acquisition market.'
You read an excerpt from the roundtable interview with three investors and can be read in its entirety in the Brookz 500. Wondering what opportunities and threats entrepreneurs face in the acquisition market in 2025? Then you can order the 2025 edition at the click of a button .
