Crucial role of cross-border deals in driving M&A activity among mid-market companies

Crucial role of cross-border deals in driving M&A among mid-market companies

The growing importance of cross-border mergers and acquisitions to mid-market businesses is revealed in the latest edition of Moore’s M&A Compass report.

Cross-border deals made up 31% of the 13,554 total mid-market mergers and acquisitions in the past year – defined as those valued between €10 million and €200 million.

In the mid-market, the average value of cross-border transactions was 12% higher than similar deals where both parties were based in the same country.

There were more than 4,200 cross-border deals involving mid-market businesses over a 12-month period, worth a total of €200 billion.

The average value of each transaction in 2022 was around €47 million – which is 17% higher than 2019 before the emergence of Covid.

The Compass report, produced by Vlerick Business School in Belgium, offers a unique insight into M&A activity – especially in the cross-border mid-market sector – over a period that is defined by the Covid pandemic.

“This has been a time of incredible upheaval, but we see that mid-market M&A has been remarkably resilient,” says Kerstin Fehre, professor of strategy at Vlerick. “These companies play a crucial role in driving M&A across the world and there are great opportunities for those that look beyond their own borders.”

Vlerick’s analysis shows there has been a significant impact on deal flow. There were 51,032 transactions of all sizes before the pandemic struck in 2019, that dropped to 38,813 a year later before bouncing back to 39,907 in 2021.

In the past 12 months, activity started strongly but tailed off as the year progressed. However, the final tally of 38,738 is broadly similar to 2020 and only 3% lower than last year.

The pattern is repeated in the cross-border mid-market, although the Compass report illustrates how it has become an important market sector in its own right driven by its distinct dynamics.

Cross-border, mid-market deals accounted for 11% of total M&A activity in 2022. Typically, they are more complex and require special expertise to drive through but the extra effort tends to generate higher average deal values.

North American acquirers still dominate, accounting for 47% of volume and 49% by deal value. European acquirers ranked second overall, closing the gap slightly with shares of 32% and 30% respectively, while Asian acquirers remain below 20% on both measures.

Africa saw a significant rise in relative deal value compared to 2021. The jump was from a low base but African firms could emerge as more significant players in cross-border mid-market M&A over the next few years.

Another trend emerging from this year’s analysis is the growing impact of environmental, social and governance (ESG) issues. Compass reveals sustainability is increasingly being mentioned as a driving force behind M&A activity.

The report concludes: “The coming years will provide further insights on whether this is a short-term effect or if sustainability will play an increasingly important role in M&A deals, especially for those with a cross-border component.”

Another factor that impacts M&A activity is the ability to finance deals in an environment of higher interest rates. Private equity slipped back as a source of funding in 2022 but a more diversified and mature range of financing options emerged.

Amid the turmoil of 2022, the Vlerick report reinforces a key conclusion of the previous M&A Compass: there is always strong appetite for mid-market mergers and acquisitions that make strategic sense for businesses, no matter the economic conditions.