CMS London’s Alasdair Steele: Positivity and creative dealmaking to drive growth

In this excerpt from our 2025 European M&A Outlook Report, which features insights from 12 leading European dealmakers, Alasdair Steele, Corporate Partner at CMS London, reveals how growing positivity and creative dealmaking is likely to drive activity in the European M&A market despite ongoing geopolitical and macroeconomic challenges.

How do you view the European M&A market for the next 18 months and beyond? 

In the UK, we saw more activity in the run-up to the Budget. This was particularly the case for family businesses and others who could have been impacted by any changes in capital gains tax. For this reason, I am cautiously optimistic we will see a ramp-up in activity into the first half of 2025. 

There have been slight headwinds due to the US election, which may have caused some slowdown in M&A activity. But as dealmakers take stock of what was a decisive result, I believe confidence will return to the market. 

A big plus for me at the moment is there is a lot more positivity in the market. I know personally from talking to corporate finance individuals from banks and corporates that a strong appetite for deals exists. This would not have necessarily been the case last year.

At CMS, we have recently carried out a survey to assess the European outlook for M&A over the next 12 months. We identified that dealmakers operating in both the corporate and advisory spaces are much more confident in M&A compared with last year. There is a strong feeling that activity will increase. 

What do you think will be the biggest potential risks or challenges that dealmakers will have to contend with in 2025?

Geopolitical risk will be a potential headwind for any deals involving a cross-border element. The biggest risk, in my view, will be Trump's drive to increase domestic trade, which will have a knock-on impact on cross-border trade. The Republican victory could see a reduction in US money being invested into Europe and the rest of the world, which would slow down M&A activity. 

Availability of financing is another potential challenge on the horizon. While banks are starting to turn the taps back on in terms of lending, in my view the pace is still relatively slow. As those within the industry adjust to a time of inflation and interest rates (after nearly a decade of very low inflation and negligible interest rates) and learn what it means to operate a business in that world, financing is going to pose a challenge.

There definitely still exists a gap between buyers and sellers in terms of valuation expectations. While sellers are holding on to the elevated valuations of 2021, buyers are looking at the markets afresh and discounting for higher interest rates and inflation. 

De-globalisation and the potential for foreign direct investment (FDI) restrictions are another headwind facing dealmakers. We are seeing an increasing move towards countries protecting their own markets and a tightening of FDI regimes, particularly in the US and across Europe. 

In your experience, how much more creative are dealmakers having to be in terms of alternative deal structures, to bridge valuation gaps and get transactions over the line? 

We are witnessing much more activity related to earn-outs and deferred consideration structures. These strategies help bridge the gap between buyer and seller expectations – particularly when a buyer is less bullish. If the business delivers in line with the seller’s expectations, the buyer pays the difference. 

If you look at the M&A world of the 2010s, particularly the back end of that decade, conditions were benign. Most countries were politically stable, interest rates were not going anywhere, and any shocks to the markets were few and far between. It was easier to predict how businesses would perform in that context. 

Throw in the COVID pandemic, higher interest rates, inflation, and geopolitical instability from events in Ukraine and the Middle East, and it is clearly a different world for businesses today. 

One thing businesses do not like in any context is uncertainty, because they need to come up with strategies to work around it. How do you close the valuation gap? 

If you are not doing an all-paper deal, then earn-outs are the next best thing as the valuation is based on actual business performance. 

What facets of due diligence, if any, are dealmakers increasingly prioritising or emphasising in transactions?

The due diligence bar is generally higher on transactions in the current deal climate. The days when deals could be done in a matter of days or weeks because people were confident in assuming a certain level of risk are gone. People are much more sensitive to potential risks and exposure to liabilities. For this reason, diligence is being conducted in a much more detailed manner than we would see in a very hot M&A market. 

Companies are asking what liabilities and contingencies they need to worry about, both on a financial and a reputational level. The risks being assessed will inevitably depend on the particular sector in which the target business is operating. If it is a technology, media or telecommunications (TMT) or consumer-facing business, for example, data protection is in sharp focus because, reputationally, this issue can have a devastating impact on a business. 

When we carried out our recent European M&A Outlook survey, it was interesting to find some of the areas of most concern to dealmakers were related to reputation, such as modern slavery, supply chain transparency, and anti-bribery and ethics.