The state of European markets: a conversation with Göran Brorsson

Figuratively speaking, there is no question that there is larger distance between European markets today and anytime in recent memory. This had begun before Covid-19 with protectionist trade policies and then continued up to today, as travel restrictions and limitations on visits and shut down much M/A activity, both in Europe and North America.

Although this may seem a complete précis of the situation, it does not reflect many of the experiences of Middle Branch Partners in the market and our general activity level in Europe. To understand this in greater detail I discussed with Göran Brorsson, our European Partner at Middle Branch Partners, about what he is experiencing in the European market.

—Chuck Weikel, Partner

MBP Partners Chuck Weikel (top), and Göran Brorsson (bottom)

Chuck Weikel: How in general do you see the MedTech M&A market in Europe at this point Göran?

Göran Brorsson: I have to say I am surprised. A number of Investment houses, both European and US and North American firms are continuing their efforts to acquire in Europe and there are also a number of European firms that have announced acquisition programs in North America. It’s clear that, especially, Investment houses wants to keep up the momentum in their investments. Several of the larger European PE-firms have recently closed new funds, as a consequence there are significant amounts of capital available.

CW: How can this work in a world where travel is limited, financial institutions are slowing new business and some firms have experienced downshifts in profitability?

GB: Let’s discuss these one at a time?

CW: Sure, go ahead.

GB: It is true that travel between the USA and Europe is severely limited right now but that is still possible to travel within Europe even if it has been somewhat more restricted during the last weeks. There may be closures in certain areas, for example UK and parts of France including the Paris region. But these are limited and if Covid is contained, then these will ease off. This situation is to a firm like Middle Branch Partner - with representation both in the US and Europe - a huge advantage. Being based in southern Sweden , I am able to travel and hold meetings with the time zones and be very efficient and effective. Recently I have been in France and Switzerland for clients and find we are the only ones doing this outreach at this time.

CW: That is a big advantage for a firm of our size.

GB: Next point, some financial institutions are in fact slowing down. They want to understand the potential consequences of Covid. But to get a better understanding it might be appropriate to ask what kind of lending is slowing down?

Some lenders are being more cautious with clients they have done less business with but are less conservative with their established accounts. This means that if you have a good relationship with a lender you are unlikely to be turned away for a new deal. There are limits of course, but this has continued to boost M&A activities for lower leverage, higher profit and established lending relationships. There is also a significant competition among lenders which favors these well established relationships.

CW: This makes sense.

GB: The final point is the “lost year” of 2020, which is how many are perceiving it. We have done a survey of MedTech clients and prospects and find sales are off about 10 to 20%. So buyers are sensitive to the issue (since their business may be underperforming) and sellers are already looking into 2021 for a recovery. Nevertheless, to the extend damage was done, it has already been backed into business plans for the future.

CW: What about future risks of the Covid pandemic in European M&A?

GB: The key risk for European firms is that this continues for a longer period of time. We believe that if you get heavy pandemic measures much past Q2 2021, not having made much progress, then the prospects for a complete recovery in 2021 will be threatened. Remember that other industries are looking out further than that for a recovery, into 2022 and beyond, like aircraft and travel businesses. So I will maintain that we are doing OK so far in MedTech.

CW: I have to ask, do you see structural changes in the industry when this all ends someday?

GB: Yes. I think the most pronounced effect will be on smaller companies. They were already being impacted by the new MDR regulatory requirements in the EU before Covid and we believe they are more likely than bigger companies to have been impacted by Covid. So we understand that many supply chain managers at larger OEM’s will continue to cull their suppliers with a focus on the smaller and financially weaker size companies.

CW: Interesting, I would say we expect a similar development in US as well. This will be a force for structural change in the industry.

GB: Definitely! We look forward to talking to MedTech businesses with an interest in Europe since Middle Branch Partners network we have so much to offer for both European and US clients!