Common perceptions of risk in m&a transactions are being reversed: while regulatory hurdles in Northern European countries, typically perceived as “safe,” discourage U.S. and Asian investors, the traditionally “risky” markets of Southern Europe are no longer seen as such.
This emerges from the second annual edition of the Risky Business Report conducted by Mergermarket for 36Brains, the Milan-based private intelligence and investigations startup founded in late 2020 by Marianna Vintiadis, former head of Southern Europe at Kroll, which is already active not only in Italy but also in Germany (see here a previous article by BeBeez). The report is compiled from 60 interviews conducted with top Chinese and U.S. managers heading companies, private equity and hedge funds to gather information on investment risk in Europe and new supply chain and ESG issues (see the press release here and the full report here).
What is most surprising from the respondents’ answers, as said, is that as many as half of the respondents point to the Nordic countries as the riskiest European market when it comes to cross-border m&a. It seems to be understood that the strict regulatory environment could influence the level of risk perceived by dealmakers looking North. Basically, in investors’ perceptions, the Nordic countries, particularly Sweden and Finland, have such a strict regulatory framework that acquisitions are seen as too complex and time-consuming. instead, the country considered the least risky for a cross-border m&a is France (42 percent), followed closely by Italy, Spain and Portugal (33 percent) and then the United Kingdom and Ireland (32 percent), furthest behind is Germany (22 percent).
That said, in general as tensions between the U.S. and China escalate and the war between Ukraine and Russia hardly seems to see an imminent end, Asian and U.S. investors see Europe as an attractive and safe destination for m&a.
As for the best investment opportunities, however, the countries that are considered most attractive are the United Kingdom and Ireland (37 percent), followed by Germany (17 percent), Spain and Portugal (15 percent) and France (13 percent). Italy is further behind with only 8 percent. Analysis of the responses by respondents’ location, however, shows interesting variations: respondents from the United States are generally more favorable to France as well as the United Kingdom, while those from Asia are more likely to invest in Germany, Spain and Portugal, and Italy.
In terms of due diligence, then, dealmakers are much more likely to seek third-party support when conducting an m&a transaction in Europe than in their home market. In particular, almost all respondents choose to outsource due diligence on sustainability/ESG, human resources/labor, and anti-corruption/reputation.
“U.S. and Asian observers see great M&A opportunities in Europe. However, due diligence on deals is increasing, particularly in relation to ESG factors. Therefore, in order to ensure long-term success, it is increasingly critical to engage the services of advisors with in-depth knowledge not only of local regulations, but of the different nuances related to business practices,” commented Marianna Vintiadis, ceo and founder of 36 Brains.
And Andrej Klisans, country manager in Germany for 36Brains, added, “We see and will continue to see foreign companies disinvesting from Russia. This creates attractive opportunities for investors looking for bargains in Europe. In pursuing these deals, a key step will be due diligence of supply chains, particularly with regard to compliance with ESG regulations, which are becoming increasingly stringent.”
