Deloitte M&A Index 2024 Q4

"Although some transactions may have been postponed due to the U.S. presidential election, the outlook for the European M&A market remains optimistic. We expect transactions to continue to be driven by ongoing digitalisation, which is now being accelerated by advances in AI, as well as ESG initiatives, decarbonisation efforts and the broader energy transition."

Miroslav Linhart, Partner in Charge of Financial Advisory, Deloitte Czech Republic

A number of larger transactions completed this year signal growing confidence from companies and investors. While some uncertainty remains, particularly in the context of ongoing geopolitical conflicts, renewed optimism, expectations of further interest rate cuts and improving valuations are positive indicators for businesses and investors looking for M&A opportunities in the coming months. Lower rates also benefit private equity firms, whose typically debt-financed buybacks have been heavily affected by aggressive post-pandemic rate hikes aimed at curbing inflation.

Positive factors that can contribute to further market recovery and increase investor confidence, especially when it comes to expanding their M&A activities, include:

• In July this year, unallocated P/E balances of companies ("dry powder") amounted to approximately $2.62 trillion. Investors, who currently hold record amounts of capital, are expected to use these funds for strategic acquisitions.

• We expect that the ongoing drive for digitalisation, which is now being accelerated by advances in artificial intelligence, will continue to drive transactions. As well as ESG initiatives, decarbonisation efforts and the broader energy transition.

• Bain & Company said that private equity firms' unsold assets have reached a record high of $3.2 trillion this year. In the last quarter, activity in the area of P/E transactions continued to increase, which raises optimism that this trend will continue and that there will be an increase in the number of unrealized exits.

• The European Central Bank cut interest rates again by 25 basis points in October, for the third time in about four months, as inflation in the eurozone fell.

• faster than expected. In September, prices rose by only 1.8%, falling below the bank's 2% target for the first time in three years.

"With record-high financial reserves and a more favourable interest rate environment, private equity firms are poised for strategic acquisitions, market optimism is growing, and this year's number of larger transactions shows renewed interest among investors."

Jan Vomáčka, Partner in the Financial Advisory function of Deloitte Czech Republic

M&A market in the Czech Republic

Investment activity in the Czech Republic continued to be limited by high interest rates, which the CNB started to gradually reduce at the end of 2023. The biggest negative impact on the economy is weak foreign demand, especially from Germany, where the government has also worsened the economic growth outlook for this year. Instead of moderate growth, it now expects GDP to decline by 0.2%. The recovery of the Czech economy has been only modest so far. In the second quarter, GDP grew by 0.3% compared to the previous quarter and by 0.6% year-on-year. The main sources of growth were rising final consumption expenditure and gross fixed capital formation. While domestic demand has recovered after inflation has rebounded, weak foreign demand remains a drag on growth, with industry hitting it hardest. The role of the main growth engine has therefore shifted to the services sector.

In the third quarter of 2024, according to Capital IQ, 27 transactions took place in the Czech Republic, the largest of which were the acquisition of a 100% stake in Nordic Telecom Holding, which provides fixed and wireless internet access, by O2 Czech Republic and the sale of the energy and engineering company Tedom, owned by PE company Jet Investment, to the Japanese industrial holding Yanmar Group. There have also been several small to medium-sized transactions, here are some of them: Genesis Growth Equity Fund I has acquired a majority stake in Predvyber.cz, a company that provides specialized services in the HR consulting market. The Rockaway Capital investment group bought the book wholesaler Pemic Books, and the Czech company AMiT, a manufacturer of control systems and electronics for transport, bought Top Power, which manufactures, installs, tests and assembles electronics.

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