Publications

Unlocking Mid-Market M&A: What Acquirers Seek in 2024

David Wong, Partner, MDN Group

The European mid-market mergers and acquisitions (M&A) terrain is complex and presents a number of unique challenges. Economic headwinds, rising operational costs, and political uncertainties have made acquirers more selective than ever. 

As businesses prepare for 2024, understanding the criteria that acquirers prioritize is crucial for those aiming to attract investment or plan a successful exit strategy.

Adapting to Sector-Specific Trends and Opportunities

Acquirers are increasingly drawn to businesses that demonstrate agility in responding to the unique demands and opportunities within their sectors. 

In Europe, industries grappling with talent shortages—such as technology, healthcare, and renewable energy—are particularly sought after. Recruitment agencies specializing in these fields are in high demand due to the ongoing need for skilled professionals.

The consumer-facing sectors, including hospitality, leisure, and food and beverage, face intense competition for discretionary spending. Companies that can swiftly adapt to changing consumer preferences, perhaps by embracing sustainability or digital innovation, are more likely to capture acquirers’ interest. For example, businesses that have successfully integrated eco-friendly practices or leveraged technology to enhance customer experience stand out in a crowded marketplace.

“Acquirers in today’s mid-market are no longer just looking for stability—they want businesses that demonstrate agility, sector expertise, and a clear growth story. Specialization and scalability are key differentiators for companies hoping to stand out in 2024.” – said Gabriel Hansen, Associate at MDN Group

In the industrial and manufacturing sectors, the European Union’s emphasis on sustainability and circular economy principles is reshaping investment priorities. Companies that have incorporated recycled materials or adopted environmentally friendly processes are becoming prime targets, and this shift is evident in the increasing number of investments in firms specializing in sustainable technologies and services.

The technology sector continues to be a hotspot for M&A activity. Acquirers are keen on businesses offering software-as-a-service (SaaS) solutions, e-commerce platforms, and innovative applications of artificial intelligence. As digital transformation remains a strategic priority across industries, companies that provide essential digital tools and services are well-positioned to attract substantial investment.

Financial Strength and Strategic Exit Planning

Financial robustness is another cornerstone of attractiveness in the current M&A climate. Acquirers are prioritizing businesses with stable cash flows, strong balance sheets, and manageable debt levels. The heightened focus on financial stability is a response to broader economic challenges, including fluctuating interest rates and inflationary pressures.

Realistic valuation expectations are also critical. Overvalued businesses may deter potential buyers who are cautious about overpaying in an uncertain market. A well-planned exit strategy enhances a company’s appeal by demonstrating foresight and preparedness. Key elements include clear timelines, leadership transition plans, and measures to ensure operational continuity post-acquisition.

A strong management team can add significant value, too. Acquirers appreciate competent leadership capable of steering the company through integration and future growth phases. The presence of experienced executives provides confidence in the business’s ability to maintain performance during and after the transition.

Build Growth Potential and Specialisation

Future growth prospects are at the forefront of acquirers’ decision-making processes.

Businesses that present a credible and well-documented growth plan are more likely to capture attention. Strategies could include expanding product lines or services, entering new geographical markets, leveraging synergies to enhance revenue or reduce costs, and capitalizing on emerging industry trends.

Specialisation has emerged as a key driver in mid-market M&A. Rather than pursuing large-scale mergers, many acquirers focus on bolt-on or tuck-in acquisitions. These targeted deals allow companies to acquire niche capabilities and expertise that complement their existing operations. In Europe, there has been a noticeable increase in such transactions, reflecting a strategic shift towards specialization and precision in growth efforts.

“Strong financial health, realistic valuations, and a robust management team remain at the top of acquirers’ checklists. Companies that prepare well and align their operations with market demands will have a competitive edge in attracting investment.” – said Denis Stukalov, Managing Partner at MDN Group.

Scalability is another significant consideration. Companies capable of growing without proportional increases in capital expenditure are particularly attractive. This operational efficiency often translates into better returns on investment and a more compelling value proposition for acquirers.

As 2024 approaches, mid-market businesses in Europe must align with the changing expectations of acquirers to succeed in the competitive M&A landscape. 

By adapting to sector-specific trends, maintaining strong financial health, planning strategically for exits, and emphasizing growth potential and specialization, companies can actively work on and enhance their attractiveness. 

These efforts not only position businesses for successful transactions but also lay the groundwork for sustained growth and profitability in the years ahead.