Why Europe's small and midcap companies are poised to win big in the M&A boom of 2025

As Q4 2024 gets underway, small and midcap companies across Europe find themselves in a climate ripe for change. Investor interest remains strong, particularly in technology, energy and sustainable sectors, and recent global economic adjustments offer strategic M&A opportunities.

The European economic landscape: A strengthening foundation

Europe's macroeconomic outlook, while historically cautious, has evolved with central banks gradually easing interest rates, particularly in the Eurozone, the UK and Scandinavia. This easing has narrowed bid-ask spreads, aligning buyers' and sellers' expectations (source: Pitchbook). As public markets rebound, as evidenced by the STOXX 600 Index reaching new highs, there is growing optimism that private markets will follow suit. For small and mid-cap companies, a reinvigorated European market sets the stage for expansion, acquisition and divestment strategies.

Tech, sustainable energy and carve-outs: Sectors to watch

PitchBook's data reveals a surge in European M&A activity, particularly in sectors such as technology, healthcare and industrials. In particular, carveouts have emerged as a significant trend, accounting for 18.2% of YTD deal value in 2024, a level not seen since 2019 (source: supra Pitchbook). Large corporates are increasingly shedding non-core or underperforming units, creating opportunities for M&A players to acquire assets at potentially lower valuations. For example, Telecom Italia's sale of its fixed-line network to KKR was a landmark deal, highlighting both market appetite and potential for carve-outs.

Meanwhile, the European technology and sustainable energy sectors continue to drive deal flow. With significant megadeals in IT and sustainable energy infrastructure, we see increasing value in energy transition technologies. The long-term growth potential in this sector remains robust, supported by European policies that support net-zero targets.

The influence of US capital and the global M&A context

Increased interest from North American investors reflects Europe's rising profile as a fertile ground for private capital. According to recent data, US-based investors account for 49.5% of the year-on-year growth in European deals, demonstrating a significant infusion of foreign capital (source: supra Pitchbook). This cross-continental flow of capital is critical for small and mid-cap companies seeking investors aligned with their growth objectives. For M&A advisers, this trend highlights the need for nuanced positioning to attract both European and US investors, leveraging Europe's sectoral strengths while addressing transatlantic market concerns.

Globally, the M&A market is undergoing a recalibration. A look at economic signals tells a story of rising yields and bullish trends in assets such as gold and bitcoin, that suggest markets are preparing to hedge against inflation amid anticipated economic pressures. As Treasury yields rise and investors consider diversifying into commodities and select technology stocks, small and mid-cap companies may find a competitive advantage by focusing on sectors that prioritise growth and resilience.

Strategic outlook for small and midcap M&A players

For small and midcap companies, this economic climate offers several strategic opportunities:

1. Expand through acquisitions: With plenty of dry powder available among private equity firms, European small and midcap companies can seek acquisitions in sectors with high growth potential. Sustainable energy and technology carve-outs are well positioned to benefit from continued investor interest.

2. Leverage foreign capital: The surge in US capital signals favourable conditions for companies able to attract transatlantic interest. However, the key is to emphasise unique European growth stories, particularly in renewables and niche technologies.

3. Prepare for a competitive exit market: While exits have been sparse, sponsor acquisitions are driving a larger share of exit activity (source: supra Pitchbook). Companies need to be exit-ready by strengthening fundamentals and positioning assets to stand out under heightened scrutiny.

Conclusion

As Europe's private market dynamics evolve, M&A strategies for small and midcap companies should adapt to take advantage of the dual forces of economic stabilisation and sector demand. Embracing these opportunities and strategically aligning with local and international capital trends will allow companies to thrive in the coming quarters. The outlook for 2025 is promising, as we see an era of dynamic growth ahead for M&A.

About the author, Jeroen Maudens is an experienced global M&A advisor ONEtoONE Corporate Finance with extensive experience in cross border transactions. He specialises in identifying strategic investment opportunities and guiding companies through complex transactions. Jeroen is also a mentor for the Founder Institute , supporting emerging tech entrepreneurs.