After Brexit and COVID-19, what acquisition opportunities are there for UK companies in the EU?
Brexit has been and gone, but our connection and reliance on the European Union remains. Even the Department for International Trade has recommended to UK businesses to set up a new business on the continent to avoid the worst of the new trade barriers and friction.
If it is going to be more difficult to do business as a third country, is setting up a fresh, shell company within the single market the right and only option? Could developing a presence within the EU provide a chance to expand your options, limit your dependencies and look at new opportunities? Maybe it’s time to think about acquiring an established EU company.
Whether it’s buying up part of your supply chain to ensure smooth JIT operations or acquiring a competitor to allow unfettered access to the single market and EU trade deals, an acquisition could be the most effective and cost-effective way to achieve your strategic goals.
At Plimsoll we specialise in helping companies find the best acquisition targets that meet their criteria quickly and with zero fuss. Whereas traditional methods require months of arduous searching and costly mistakes, Plimsoll can take your criteria, build you a bespoke list of options and then help you filter it down to around 5-10 of the best for you. The work involved in acquisition searching is reduced from months to minutes.
We provide intelligence for companies looking for all types of acquisition, from undervalued, distressed companies through to high growth, high profit targets that larger companies would pay a premium for. We are going to focus here on the former - companies that are in financial distress and potentially available to acquire for less than their long trend value.
In our analysis of thousands of markets around the world and the millions of companies within them, we have found some trends beginning to emerge as Europe’s key economies begin the process of post-Covid recovery.
What’s happening in the big 4 EU economies?
Germany
The powerhouse economy of the EU had been struggling for growth in the years building up to the pandemic. Like most major economies, the last 12 months has been painful as .
However, the number of weakened German companies remains remarkably low. Plimsoll has rated less than 18% of all German companies as being in a distressed state and ripe for takeover. There are some sectors that have higher levels of opportunity. The electrical and transport sectors, for example, have a higher percentage of companies in distress with Plimsoll rating 25% and 24% of companies as being in financial danger, respectively.
Buying a German company will remain an expensive option for a UK company looking to acquire. Of course, smaller, speciality markets within larger sectors may present individual opportunities, but research needs to be thorough, and Plimsoll can help you search across a broad spectrum of markets.
France
COVID-19 is estimated to have knocked almost 10% off French GDP, but like Germany, French companies have remained stable and the percentage of companies in financial peril remains at around 18%.
There are increasing numbers of opportunities, particularly in the French chemical sector. Our assessment of the key industries within that sector showed almost 1 in 3 chemical companies are vulnerable and in need of additional capital.
Elsewhere, despite the tsunami of demand over the past 12 months, opportunities to acquire distressed companies in the French medical sector are increasing. 20% of companies across the sector are ripe for takeover.
Buying into France, as one of our closest geographical and cultural neighbours, will remain attractive, particularly for export / import reliant sectors where new paperwork and trade barriers are being most acutely felt.
Italy
Having taken the brunt of the initial wave of the pandemic and the structural weakness in its economy, with high debts and historic low growth, it is perhaps little surprise that Italy has the highest density of distressed companies of the four largest economies. 22% of all Italian companies that Plimsoll have assessed across all sectors are in financial difficulty and potentially in need of rescue.
More striking is the weakness in Italy’s financial sector. Almost half of companies in that sector are in financial trouble. With such uncertainty regarding equivalencies and other regulation alignments, London-based financial giants could find major opportunities in Italian financial capitals if they are looking to set up in the EU.
Elsewhere in Italy, both the hospitality and the drinks sectors have seen the number of distressed M&A opportunities increase as markets have been shuttered. As restrictions are increasingly lifted, there is a chance for investors to save struggling companies in these sectors and expand their market share.
Spain
Spain has the longest list of sectors with a high percentage of companies in financial distress. Again, hampered by the pandemic, several Spanish sectors are rife with takeover opportunities.
The automotive sector is the most eye catching, with more than a third of companies in jeopardy and potentially looking for investment. As Europe’s 2nd largest car making region, there are several opportunities to buy into the market at low prices now before demand picks up over the next few years.
Elsewhere, Spain’s enduring reliance on the hospitality, leisure and transport sectors is stark and the pandemic is likely to have left many companies teetering on the edge. All three key, tourist-heavy sectors have seen more than half of their main protagonists fall into financial trouble according to Plimsoll’s latest analyses. With restrictions lifted, vaccine passports in place and pent-up demand due to flood the market in the second half of 2021, now could be the time to act.
The other EU countries with the most opportunity
There are acquisitions opportunities across the whole of the EU, in all sectors and in niche markets within them. However, there are some countries where the opportunity to pick bargain acquisitions is the highest.
Ireland, Latvia, Hungary and Portugal were the four countries with the highest proportion of financially weakened and most likely to be open to acquisition. With common language, customs and historic ties could UK companies look to buy into the EU through Ireland or look further east perhaps? The Irish drink, energy and financial sectors are all awash with vulnerable companies in need of support and rescue.
What are the EU industries with the most opportunities?
The hospitality sector is almost a given after the past 12 months, but it is the sector with the highest proportion of companies in need of rescue and Portugal has the highest proportion of those companies vulnerable to an approach.
The automotive sector across the EU also looks to be ripe for a period of consolidation too, especially across the eastern parts in countries such as Lithuania and Slovenia. A quarter of companies across the sector that are ripe for takeover could be open to deal making with UK peers.
The transport sector has also taken a battering as excursions, holidays and commuting have been restricted over the past 12 months to varying degrees across the EU. As a result, more than a quarter of companies are financially weakened. Interestingly, France, the Czech Republic and Lithuania share the highest percentage of companies in need of rescue in the transport sector.
Of course, not all acquisitions are based on finding distressed companies, restructuring them, achieving economies of scale and moving on to the next one. There are a myriad of different reasons to acquire a company. Some want an “off the peg” high growth, premium acquisition and are prepared to pay a high price. Others want to buy a presence in a high growth overseas market.
Whatever type of acquisition opportunity you are looking for, Plimsoll can reduce the cost, time, and stress from the process of finding targets. We can help any business and its decision makers find the best opportunities based on any criteria and will work to ensure you have a manageable, targeted list of the options you want to approach or at least consider moving to perform due diligence.
See how Plimsoll can help you to find the best possible targets for your own company today with a free, no obligation count of the opportunities there are based on your criteria. Just tell us your criteria today and we will tell you how many companies meet it.
