Changing Dynamics in Austrian M&A Market: An Interview with M&A Professional and Legal Expert Philipp Kapl

Market uncertainty is so far the prevailing trend in the M&A market in 2023. As interest rates have risen and the market has cooled down, fewer transactions have been occurring — despite the fact that downturns can be advantageous times for M&A transactions. 

Philipp Kapl, partner in Binder Grosswang’s corporate  M&A team, has a wealth of insight into this topic as a member of one of the leading law firms in Austria. Thanks to more than ten years of experience in M&A transactions, joint ventures, and private equity deals, Mr. Kapl brings a steady, clear-eyed view in a time when the markets seem to be getting hit in all directions: from inflation and war to supply chain shortages and an energy crisis. 

Keep reading to learn from Mr. Kapl’s perspective on how current events are impacting M&A deals.

What are buyers thinking in the current market?

2022 was a strong year for both private equity and strategic transactions, but much of that heat has cooled down in the first months of 2023. This is due to high inflation, skilled labor shortages, supply chain issues, and war. However, as Mr. Kapl points out, the uncertainty these events have caused is the biggest challenge.

That uncertainty manifests in different ways for different buyers. For example, conditions can be more difficult for private equity investors, since external financing is generally more important for them to close transactions. This means that the uncertainty about further hikes in interest rates is impacting them more than corporate investors.

Mr. Kapl explains that interest rates have less of an impact on corporate and strategic buyers when it comes to funding: “While they are equally affected by the general economic uncertainty, they are able to execute M&A transactions more easily in the current environment. This is also reflected in the current strength of strategic investors in bidding processes.”

Uncertainty in the current market also affects deal timing. An acquisition does not happen in just a few days. To remain flexible through shifting market conditions, preparation is even more crucial to dealmaking.

What should sellers consider in this market?

Since the trend shows signs of a developing buyer‘s market, sellers have more considerations to make when it comes to making deals. A few months ago, sellers were able to leverage multiple bidders to achieve strong results in a transaction. Nowadays, that kind of situation is less common.

As Mr. Kapl explains, this applies to both economic and legal elements of M&A transactions. “In M&A transactions, there is more frequent talk about legally non-mandatory closing conditions, even financing conditions are sometimes up for debate,” he shares. 

Again, preparation is key. Mr. Kapl explains that this starts with the structuring of sales processes. He advises that sellers consider to “increase the purchase price by including flexible elements.” This may in turn require the buyer to review commercial contracts more thoroughly, since due diligence becomes even more important in difficult markets. 

The impact of the market environment on M&A transactions

Since the pendulum seems to be swinging from a market situation that favors sellers to one favoring buyers, buyers come into M&A deals with increased bargaining power. M&A processes are also starting up more quickly, with direct negotiations occurring bilaterally. Again, preparation and flexibility are key factors for success in the current M&A market.

Mr. Kapl explains that for strategic investors, the intention to acquire another company usually arises from existing business activities. For example, strategic investors may purchase a company with an additional product to distribute via their existing distribution channels. On the other hand, financial investors are typically more interested in the potential to increase the profitability of the company on a stand alone basis or as an add-on to another portfolio company.

M&A transactions in a buyer’s market

A buyer’s market also offers advantages in negotiating transactions from a buyer’s perspective. Mr. Kapl delves into three examples where investors and buyers can find legal advantage during the negotiation of an M&A transaction: non-mandatory closing conditions, financing conditions, and other buyer-friendly elements, such as material adverse change provisions.

Mr. Kapl shares that “closing conditions have a tendency to reduce transaction certainty and are therefore inconvenient for the seller. From the buyer's perspective, closing conditions reduce the risk associated with the transaction.” As such, leveraging such closing conditions allows the structure of an acquisition to be optimized from a buyer’s perspective.

Mr. Kapl also points out that stronger bargaining positions also impact other areas of contract drafting, such as the buyer’s right to rescind in the event of significantly adverse developments, like material adverse change provisions.

Conclusion

Overall, M&A advisors are facing major challenges as they search for the intersections in the different expectations of both buyers and sellers. A platform like Dealsuite can provide support in these challenging times, especially when it comes to screening the market to find the best opportunities.

Mr. Kapl points out how newer platforms such as Dealsuite are enabling this kind of search: “We see an emergence of platforms like Dealsuite that support buyers and sellers in an opaque market situation and thus make it easier for transactions to take place.”

Powered by a smart matchmaking algorithm, Dealsuite is full of features to help M&A professionals find their next deal — even in this challenging economy. 

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