Europe – Slow but steady

Financial sponsors continued to be active in the European market, albeit less so than in previous years. Strategic investors also made a significant impact with their transformational strategies, which include divestments and inorganic growth initiatives. In terms of key sectors, consumer, financials, technology, and energy were prominent in 2024 and are expected to remain so in 2025. 

Several factors underpin the data. High financing costs, increased caution in deal analysis and execution, efforts to bridge the pricing/valuation gap between sellers and buyers, and thorough reviews of target company performance have all impeded the resurgence of M&A activity in Europe. Additionally, political instability in countries like Germany and France, along with macroeconomic complexities, have further heightened investor caution.

M&A trends

From the perspective of sale processes, bilateral transactions have significantly increased in Europe. This rise is partly due to investor caution, as they prefer to avoid the costs associated with unsuccessful bidding processes, sometimes resorting to cost coverages which are now acceptable to sellers in some situations. Additionally, there is a scarcity of truly attractive assets which could generate competitive auction processes (of course, with obvious exceptions), leading to bilateral processes with a preferred natural bidder.

We have also observed greater flexibility in sale processes, whether bilateral or auctions, where rules are adapted on the go based on how the processes unfold, as well as longer durations from deal inception until signing and closing. A reason for those longer durations can be found in the deeper dive through the due diligence exercise carried out by buyers, together with the subsequent longer and, sometimes, tougher negotiations to address the issues identified in the target businesses (particularly where those issues cannot be covered through W&I insurance).

As in other regions and as seen in 2024, the balance between sellers and buyers is expected to tilt further in favour of buyers. As highlighted in other chapters of the HSF M&A report 2025 (see our piece on deal terms here), we have seen and expect to continue seeing in 2025 transaction terms that favour buyers, such as material adverse change or material adverse effect provisions, termination rights, or specific indemnities. Creative mechanisms to bridge the valuation gap between sellers and buyers, such as hybrids or blend of locked-box and completion accounts mechanisms or earn-outs, are also anticipated. To facilitate acquisition financing, given limited or costly access to third-party and bank financing, we have also seen and expect for future deals in Europe a move towards vendor financing.

In summary, M&A activity in Europe is expected to continue to climb slowly but steadily in 2025. However, we should be prepared to devise sophisticated and imaginative solutions to sign and close deals that are now fraught with greater uncertainty and complexity due to a number of different factors such as those mentioned above.

Outlook for 2025

Despite the current backdrop, market sentiment for 2025, backed by macroeconomic forecasts, suggests an increase in M&A activity over the next 12 months. The European Central Bank projects that inflation will hover around the 2% target from the second quarter of 2025 onwards, and economic activity in the Euro area is expected to gradually recover amid significant geopolitical and policy uncertainty. This recovery will be supported by rising household incomes, a resilient labour market, and easing financing conditions. We anticipate that these macroeconomic factors might help to boost M&A activity in 2025.

We can also expect that, as in previous years, financial sponsors – despite caution and limited access to debt funding at high credit costs – will be active in 2025 given existing dry-powder and their need to divest their portfolio companies (which might be carried out through secondary buyouts or continuation funds).