M&A strategies for a brave new world

In today’s rapidly evolving market, companies need to rethink their strategies, prioritizing themes like digitization and climate change to ensure long-term success. How can adapting M&A strategies to acquire strategic assets and bridge skill gaps drive lasting success and strengthen market leadership?

Rethinking M&A strategies

This year, European M&A transactions have rebounded amid an improving economic outlook and declining interest rates. However, companies still face an increasingly dynamic market environment, compelling them to rethink the future of their industries, reassess core strengths, and reevaluate competitive advantages to succeed. Additionally, for sustainable long-term value creation, companies must consider broader macro trends such as inflation, interest rate movements, and transformative forces like digitization, advancements in AI, climate change, healthcare and well-being, energy transition, workforce skill shortages, and aging populations.

As such, capital allocation needs to be considered and evaluated through the lens of whether the current asset portfolio is fit for purpose to enable desired returns going forward. This will help companies make fundamental choices on growth strategies, prioritize the markets and segments where they need to play, identify gaps and the skills they need to win, determine which assets will be needed for the future, and determine how best to transform themselves in the process by making both organic and inorganic investments.

Trends reshaping M&A in the Czech Republic

M&A deal activity in the Czech Republic rose in 2024 (November data), supported by a generally improving economic environment, with slowing inflation and declining interest rates. Preliminary data from Mergermarket shows an overall deal count of 84 for 2024, marking a 12% increase compared to 2023.

Purchase price mechanisms

With a 71% share in small to medium-sized transactions, closing accounts continues to be generally the preferred mechanism for determining deal prices in the Czech Republic. In the pre-pandemic period, however, the locked-box mechanism gained some popularity in the SPAs, as the Czech Republic became a “seller’s” market, putting more emphasis on making the purchase price as certain as possible. However, the economic uncertainty caused by energy crisis, high inflation and geopolitical conflicts called for more flexible purchase price arrangements, such as earn-outs. Such strategies are often essential for breaking deadlocks in negotiations, especially when there's a significant gap between sellers' price expectations and buyers' risk tolerance. This year, however, brings positive developments: demand is rising, and price expectations between sellers and buyers are more aligned than in recent years.

Few shifts occurred in the origin of key bidders

Between 2016 and 2022, local transactions accounted for more than half of all deals, rising to about two-thirds in the past two years. Austrian investors emerged as the foremost foreign participants in 2024, sealing five deals, closely trailed by four deals from US and UK investors. In the long run, German investors are the most active due to the close commercial ties between the Czech and German economies. While US investors secured the second position in both 2023 and 2024, acquisitions from non-EU nations (including the UK) remained infrequent, constituting only about 20% of acquisitions in the Czech Republic over the past seven years. Strategic players continue to dominate the M&A market, while the number of transactions carried by financial investors has seen a slight decline this year.