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During the past several months, we have witnessed increasing interest from clients wishing to discuss Merger & Acquisition related topics. The majority of such companies are back on a growth path with solid profit margins in excess of at least 10%. One of the things that has struck us about the increased interest in M&A in Europe, is related to the challenges many ECM/BPM companies expect to be confronted with in the future, such as:

- Do we have to invest in SaaS/Cloud based services as many of the large vendors have proposed to do or already introduced?
- Do we have to go international now we are growing again and our domestic market is fairly secured in the sectors we service?
- How can we expand our business without impacting our profitability and cash flow?
- We have trimmed our business back to profitable levels, but how do we find the path back to growth?
 

Many more questions could be added, however, this gives an indication of many of the questions we are confronted with and also reflects how highly fragmented the European market still is.
 

One of the most noteworthy factors in Europe is that we are also witnessing relatively new companies growing incredibly quickly. Some of them have grown 50-60% in revenue during 2010 and expect to maintain this level of growth throughout 2011. These companies maintained their R&D investment throughout the credit crisis and they are now reaping the benefits of the effort invested. We expect that new and innovative companies in Europe will increasingly come to the fore and gain international recognition. From a European perspective, the crucial question is, will such companies remain European or quickly be acquired by US firms.
 

Despite the strong Euro, we are not witnessing increased interest from European companies wishing to acquire in the US. Obviously, there are a few exceptions such as Autonomy and Software AG. However, US companies seem to be on the prowl. Not only are we working on a number of M&A projects, we are also aware of quite a number of companies, headquartered in the US, who are seeking acquisitions in Europe. Common reasons for US companies to acquire in Europe are:

- Increasing the Euro related revenue in their overall revenue mix.
- Defragmented market without clear leadership, offering more opportunity than the more consolidated US market.
- Growth, with large economies in Europe such as Germany, France, Benelux and the Nordics performing well
- Many attractive and innovative companies in the ECM/BPM sector.
 

Another factor is that US companies are not afraid of taking on some risk. They tend to be accurate in both assessing the risk and understanding the potential of an acquisition. Mid-sized companies in Europe tend to find this particularly difficult when considering acquisitions in the US. Americans  know precisely how much it will cost to set up a new sales and services organization or to shorten their time to market by acquiring technology, as opposed to developing it themselves; gaining access to an existing client base with good up-sell and cross sell completes the picture.
 

Despite our prediction that recruitment would drastically improve during 2011, this hasn’t yet happened. Of course, we have observed growth in assignments for our executive search business but movement is still considerably slower than predicted. Unlike in the past, top candidates now want to guarantees in place in order to minimize their risk when they choose another opportunity. This can create challenges from time to time, although nowadays, such requirements are expected and understood by the hiring party. Despite such challenges, we are however, receiving a considerable increase in hiring mandates for new sales and senior managers, which we would expect to be operational by the end of Q4 this year. This fact alone would seem to be a good indicator for future growth.