Higher inflation and interest rates are driving buy-side risk aversion

There’s no doubt that market conditions are tough right now. Inflation and higher interest rates are making it harder to secure funding and the weak macroeconomic outlook is adding to uncertainty.

Financing conditions are impacting deals

Jarmo Kuusivuori, CEO of Finnish M&A advisory firm Wolfcorner, says that he has seen buyers acting more cautiously . “Private equity like their portfolio companies to get part of their funding from the banks, and that’s getting more difficult,” he says. “At the very least, deals are taking more time as companies have to find alternative funding sources.”

Wolfcorner specialises in the information and communication technology sector in the Nordic region, but also works with clients in other industries, such as media, hotels, services and marketing. The availability of financing is affecting companies across all sectors as central banks continue to hike interest rates in response to inflation.

Finland is no exception to this. Inflation peaked at more than 9% in November and December and remained high at 7.9% in March. Across 2022 as a whole, consumer prices rose 7.1%, which is the biggest annual change since the early 1980s.

Dealsuite has conducted research on the impact of inflation and interest rates on the availability of financing within the M&A market, and the results show that across the DACH, UKI, Benelux and French markets, advisors reported a decrease of 10% to 41% in availability of financing due to rising interest rates and inflation.  

Finding financing isn’t the only challenge. Kuusivuori says that buyers are also tightening terms and conditions to provide more guarantees that a deal will succeed.

“It’s a complicated situation but we still believe we can close the deals in the pipeline,” he says. “Sometimes that means accepting a change to the terms and conditions or finding other workarounds. The right solution varies from deal to deal but there are many things we can do.”

How Wolfcorner has expanded its network with Dealsuite

While the current inflationary environment is a largely global phenomenon, M&A advisers can improve their chances of closing deals successfully by expanding their networks. To find the best offers, it’s important to consider as many buyers as possible, and especially cross-border bidders.

Kuusivuori has taken this approach to heart. Today, Wolfcorner is not only active on deals involving Finnish companies, but has developed an international reputation for its tech expertise. “At the end of last year we sold a Swedish and Vietnamese company to a Swiss company,” he says. “I was the only Finn on that deal.”

As an experienced Dealsuite member, Kuusivuori says the platform has helped Wolfcorner to develop new buyer contacts in private equity and venture capital firms. “We announce our sell-side mandates there so we can identify all the possible buyer candidates and expand our network,” he says.

With Dealsuite, M&A professionals have the direct contact details of thousands of M&A advisers at their fingertips, which increases the chances of finding the right counterparty and makes sure they don't miss out on deals.

Rising interest rates and inflation not only impact the availability of financing and the terms and conditions of deals, it can also affect the valuations of a company. Read more about how rising rates and inflation can affect your company's valuation.