Activity in the European M&A market continued to increase in the third quarter of this year. This was mainly due to declining inflation, falling euro interest rates and continued positive developments on the equity markets. However, we expect a slight slowdown in the market in the fourth quarter as some companies may have postponed larger transactions due to the US presidential election. This is likely to be a temporary pause before a recovery next year. Given these factors, the Deloitte M&A Index for the final quarter of this year expects a slight decline in announced deals to 2,964.

Based on data published by Capital IQ, the number of transactions increased to 3,040 in Q3 2024 from a total of 2,841 (recorded in Q2 this year). This represents a 7% increase in activity. In addition, the total value of transactions, measured as the sum of the value of transactions completed in the last twelve months (LTM), has also increased from the original US$576 billion to US$638 billion. This increase reflects the continuing improvement in the economic environment and market sentiment. The Deloitte M&A Index projected an increase to 3,025 transactions for Q3 2024.

"Although some transactions may have been postponed due to the US presidential election, the outlook for the European M&A market remains optimistic. We expect transactions to continue to be driven by ongoing digitisation, now accelerated by advances in artificial intelligence, as well as ESG initiatives, decarbonisation efforts and the wider energy transition."

-Miroslav Linhart, Partner in charge of Financial Advisory Services, Deloitte Czech Republic

A number of larger transactions completed this year signal growing confidence among companies and investors. Although some uncertainty remains, particularly in relation to ongoing geopolitical conflicts, renewed optimism, expectations of further interest rate cuts and improving valuations are positive indicators for companies and investors looking for M&A opportunities in the coming months. Lower rates are also benefiting private equity firms, whose typically debt-financed buyouts were heavily influenced by aggressive post-pandemic rate hikes aimed at curbing inflation.

Positive factors that may contribute to further market recovery and increase investor confidence, especially in terms of expanding their M&A activities, include:

• In July this year, the unallocated balances of PE firms ("dry powder") amounted to approximately USD 2.62 trillion. Investors currently holding record amounts of capital are expected to use these funds to make strategic acquisitions.
• We expect that the ongoing drive towards digitalisation, now accelerated by advances in artificial intelligence, will continue to drive transactions. As will ESG initiatives, decarbonisation efforts and the wider energy transformation.
• Bain & Company reported that private equity firms' unsold assets are at a record $3.2 trillion this year. PE deal activity continued to increase last quarter, raising optimism that this trend will continue.
• 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 euro area fell faster than expected. In September, prices rose just 1.8%, falling below the bank's 2% target for the first time in three years.

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

-Jan Vomáčka, Partner, Financial Advisory, Deloitte Czech Republic

M&A market in the Czech Republic

Investment activity in the Czech Republic continued to be constrained by high interest rates, which the CNB began to gradually lower at the end of 2023.The biggest negative impact on the economy has been weak external demand, especially from Germany, where the government has also downgraded the economic growth outlook for this year. Instead of moderate growth, it now expects GDP to fall by 0.2%. The recovery of the Czech economy has so far been only moderate. In the second quarter, GDP grew by 0.3% compared with 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 as inflation receded, weak external demand remains a drag on growth, affecting manufacturing the most. The role of the main engine of growth has therefore shifted to the services sector.

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