Is Austria‘s M&A Market On Track?

The COVID-19 pandemic disrupted mergers and acquisitions (M&A) in Austria, but deals were still being completed at a slower pace thanks to virtual technology and patience. With the Travel and Tourism industries particularly hurt, the effects on the economy have been significant.

According to the Financial Times, Austria was one of the weakest eurozone economies in the fourth quarter of 2021, when its economy shrank 2.2 percent after it imposed a lockdown and vaccine mandate to tackle soaring coronavirus infections. Along with Germany, Austria’s vaccination rates are among the lowest in Western Europe.

To learn how the country’s M&A market has been affected and where the deal market will go this year, I spoke with veteran dealmakers Thomas Schirmer and Philipp Kapl, of Binder Grösswang.

SS&C Intralinks: COVID-19 pandemic continued to be the main topic of 2021. How did M&A activity in Austria develop over the past year?

Thomas Schirmer: After suffering its deepest recession in the post-war area with a decline in GDP of 6.8 percent in 2020, Austria’s economy has experienced a strong comeback with a GDP increase of 4.1 percent in 2021. Following the trend of 2020, we witnessed a very high volatility in M&A transactions especially in Q1/Q2 2021 due to the COVID-19 pandemic. After a reasonably successful start of Austria’s vaccination campaign and rising temperatures in spring, the number of COVID-19 cases declined and most travel restrictions were lifted. However, since autumn 2021, cases of COVID-19 infections have been on the rise again, forcing Austria into yet another lockdown in November and December.

Philipp Kapl: In addition to the widespread availability of vaccination, a decline in infection numbers and the lifting of related restrictions, low interest rates also contributed to a spark of M&A activity in the second half of 2021 by both strategic and private equity (PE) investors. Toward the end of 2021, M&A activity remained high despite another — the fourth — lockdown. Fears of a major disruption of deals did not materialize although transactions were decelerated on a case-by-case basis.

At the beginning of the COVID-19 pandemic, many predicted a surge in restructurings and insolvencies. In a growing Austrian economy with strong M&A activity, what is the role of corporate restructurings and insolvencies in the M&A landscape?

Thomas: Corporate restructurings have become increasingly popular. The economic crunch in 2020 mercilessly exposed weak businesses that may have been retained due to government support and/or as a result of management attention drawn away by more pressing needs at that time. In a climate in which uncertainty weighs heavily on optimism, many corporates and PE investors are thinking about resolving underlying issues permanently, including a sale or discontinuation of respective business units. Against this background, the COVID-19 pandemic may serve as a good explanation for drastic measures irrespective of their cause.

Philipp: Gross domestic product (GDP) growth in the first three quarters of 2021 was stronger than expected. Especially, the service sector, which was severely affected by state-wide restrictions and is a crucial pillar of Austrian GDP, was able to rebound. In fact, corporate insolvencies in H1 2021 were about 45 percent lower compared to H1 2020, which is lower than pre-pandemic and marks the lowest number in over 40 years of Austrian economic history. However, shortages in input materials and labor have contributed to a massive increase in producer prices and are preventing a more dynamic advance in economic recovery. The consequences of this combination are yet to be seen.

The European Central Bank (ECB) has kept interest rates consistently at very low levels. How does this impact M&A activity in Austria?

Philipp: In the blurred economic environment resulting from the COVID-19 crisis, the demand for corporate loans has increased in Austria throughout 2021. These dynamics are based primarily on demand for long-term loans and the financing needs of major corporations. In the Austrian M&A environment, we see increasing participation of strategic investors who implement M&A transactions with a strong financing component — similar to typical PE transactions — potentially supporting or substituting organic mid- to long-term growth.

Thomas: The continuously low interest rates give distressed companies further room to maneuver. On the downside, however, inflation may become an issue – not only in Austria but in all major western economies. Austria’s inflation is projected at 2.8 percent for 2021, with the peak of the current wave expected in January 2022 at 5 percent.

What is your expectation for 2022?

Thomas: There is some uncertainty in the M&A market as it is still unclear how the consequences of a seemingly inevitable spread of the omicron variant will unfold. Austria’s government introduced one of Europe’s first compulsory COVID-19 vaccination legislations, making vaccination mandatory from February 2022 onward. In combination with a resilient Austrian economy, low interest rates and plenty of available liquidity, we are optimistic that the M&A market will remain highly active in 2022.

Philipp: Activity is expected to also remain high in corporate restructurings as corporate groups catch up on projects and transactions that were delayed during the COVID-19 pandemic, irrespective of the underlying reasons for such restructurings. Indirectly, this may also have a positive effect on M&A activity.