With Donald Trump’s entrance into the White House, the global economic landscape might face a wave of political decisions challenging the international order:
- Preparation for US tariffs: Trump could, and likely will, impose tariffs of 10%-20% on certain European products.
- European Central Bank policy in response to Trump’s inflationary policies: The European Central Bank will face a tough dilemma: to maintain interest rate cuts—thereby aiding Germany in its recession—potentially leading to a depreciation of the euro against the dollar, or to follow the Federal Reserve’s anticipated path of interest rate hikes.
According to projections shared by the Agency for Business Competitiveness (ACCIÓ) in its report “Economic and Geopolitical Impacts of Donald Trump’s Election”, the European GDP could decrease by 0,5% to 1,5% by 2025 due to the “Trump era,” while Catalonia might see a GDP contraction of 0,2% to 0,4%.
However, Trump’s policy is not the only challenge European companies will face in the coming years:
- Changes in globalisation: There is a rise in barriers worldwide to secure value chains within individual countries (increased protectionism), while multilateralism seems to have taken a backseat.
- Geopolitical conflicts: Events such as the war in Ukraine and tensions between Russia and the West have heightened global risks.
- Innovation gap in the European Union: According to the report “The Future of European Competitiveness: A Competitiveness Strategy for Europe”, this is a critical challenge for securing Europe’s future competitiveness. The EU lags behind the US and China, especially in key sectors such as digital technology, artificial intelligence, and cloud services.
- Green transition: Reducing the carbon footprint remains a priority, but dependence on key minerals, the European Union’s transition to the EU is controlled mainly by China, complicating the panorama in Europe.
- Relations with China: The European Union faces the challenge of balancing trade relations with China, a crucial economic partner, but one that often operates outside international trade norms.
In light of the above, companies must adopt proactive measures to address these challenges and prepare various roadmaps to adapt swiftly to any scenario. The main strategy should focus on diversification into other markets to reduce strategic dependencies and mitigate geopolitical risks, defined as a “China Plus One” or de-risking strategy.
How will this global context affect the European M&A market?
The rise in geopolitical risks and regulatory uncertainty will likely lead to a reorientation of European M&A operations towards local markets, with greater emphasis on strategic and sustainable sectors such as technology and renewable energy. This sectoral trend has already been evident in the latter half of the year, with the FinTech sector, for example, experiencing a boom in strategic acquisitions.
While the restrictive monetary policies of the European Central Bank may limit the capacity of European companies to finance acquisitions, reducing dynamism in M&A particularly in cross-border agreements and less strategic sectors. A hypothetical depreciation of the euro against the dollar, stemming from a gap between Federal Reserve and ECB monetary policies, could make European companies more attractive to foreign buyers. Additionally, Europe’s geopolitical stability provides an advantage.
According to data from Mergermarket, the total value of M&A transactions in the first half of 2024 in Europe increased by 31% year-on-year – €439 billion compared to the same period the previous year. However, the number of transactions decreased by 8%. A similar trend was observed in the US, where, despite a 40% increase in total transaction value, the number of transactions fell by 13%.
In summary, while 2025 presents some uncertainties, as highlighted, it is forecasted to be a positive year for European M&A. The region should leverage its geopolitical stability as a strength to attract both domestic and foreign investment, solidifying the definitive revival of European M&A activity.
