As M&A activity rebounds from the recent downturn, trends such as AI and changing valuation standards are reshaping the landscape. Eastern Europe, in particular, is drawing increased attention from global investors, positioning it as a strategic player in sectors like software-as-a-service (SaaS) and IT services.
To explore these developments further, we spoke to Filip Drazdou, an M&A advisor at Aventis Advisors. He shared his perspectives on the latest market trends, the impact of AI on deal-making, and the shifting global focus toward Central and Eastern Europe.
Q. First of all, please can you tell us about your role as an M&A advisor at Aventis?
We’re technology M&A advisors. We work with founders of businesses when they want to sell, and buyers looking for acquisition targets. We’re based in Warsaw, but we’re growing through partnerships in the United States and India.
I’ve been at Aventis for five years now, working on transactions and driving research on valuations and IT services.
Q. There were predictions that M&A activity would pick up this year, but the data suggests it’s still quite flat. How does it look from your perspective?
The market is certainly better than last year. The value of mega deals doesn’t match what we saw in 2021, especially in the technology space. But in terms of deal numbers, the market is definitely picking up.
Transactions peaked during the Covid era of 2020-21, when monetary policy was loose and interest rates were low. Then there was a big decline. Now we’re recovering; AI has had a big influence on stock market activity, investors are enthusiastic again, and the markets are at an all-time high.
We’re seeing more buyers interested in deals, and founders who delayed the sale of their business are coming back to the market and saying, “OK, let’s do it now.”
Q. Aventis frequently publishes analysis on M&A valuations. What have you learned from recent data?
The biggest public companies in the US have stabilized around six or seven times their median revenue valuation. We have a bigger sample of SaaS companies around the world, including smaller ones, and there we see two to four times revenue, but that’s also stabilized.
Valuations are not going anywhere. As revenue grew, there was a slight decline, but that also meant that companies were able to stay profitable or improve their margins. They’re back to normal levels now.
Q. What do you think will be the big tech trends for next year?
One to watch is the IT services market. During Covid everyone invested in digitalization, because we had to facilitate remote working, which meant building new software quickly. This came to a halt and all the new website app building stopped.
We’re expecting a comeback soon, with AI driving another wave.
Q. How does that feed into M&A? Are companies spending more on development and want to acquire companies that can do it for them? Or are those companies thriving so they become better targets for acquisition?
I think the latter. Because founders are still saying it’s not the right time for them; they’ve had a decline in revenue or profits, or laid off staff. And we recommend our clients should only sell when they’re growing.
Growth rates are a big part of valuations, so when they’re up again, we think there will be an uptick in M&A in that space.
Q. Are there any other areas where you know Eastern Europe is particularly strong that you’re focusing on next year?
Eastern Europe is attracting more interest because the Western European markets are saturated and have a lot of capital. When fewer companies are available, valuations go up, because PE funds and strategic investors are going for companies with the same criteria.
Investors are wondering if they can apply the same strategy to Central Eastern Europe and do, for example, a roll-up play, where they acquire a number of companies or just acquire some larger companies in the spaces that weren’t previously attracting investors.
And the parliamentary elections last year made Poland more favored internationally.
Q. In terms of foreign investment, are there any particular regions looking at Poland and Eastern Europe more than others?
Most investors are from the US, because of its technology and the size of its PE ecosystem, and Germany. I think investments from Germany will accelerate because of the troubles in the automotive segment. Companies will need to cut costs to remain competitive with Chinese manufacturers, so outsourcing to Poland through an acquisition could cut costs while maintaining a stable European supply chain.
Automotive components, metalworking, manufacturing—-those are the segments that will see more activity in the coming years.
Q. Are sellers putting an artificial intelligence (AI) strategy in place to make them more attractive to potential buyers?
Yes, especially in the technology segment. You need to have an AI story in terms of how you can generate more revenue, but also in terms of reducing costs and improving customer experience.
Are you implementing GitHub copilot in your development? Or are you using AI in your customer support? Sometimes it’s more about having a defensive narrative: explaining to investors why AI will not damage the business and it will still be viable in five years.
Q. Are you finding that buyers only look at companies that are built with AI, or that have a clear AI differentiator?
We haven’t yet seen AI playing a major role in any buyer’s acquisition strategy. For many AI products or services, the business model isn’t quite there yet, so a lot of buyers are either skeptical or reluctant to make it the core of their strategy.
But this will change in the coming years. For example, the US real estate company Zillow recently acquired a virtual staging application – where you have an empty room, and you can furnish it with AI. Next year, big corporations will be following suit, looking at what acquisitions they need to make to accelerate their AI roadmap.
Q. From your own perspective at Aventis, are you using any AI tools to simplify the M&A process?
We’re testing APIs like Perplexity, an AI search tool, to speed up tedious tasks such as working out where companies are located, how many employees they have, their revenue and if they are for sale. For light financial analysis, tools like ChatGPT can be helpful.
Over time, the role of an M&A advisor will become more about building relationships with buyers and sellers, and helping them navigate the sale journey. Because it’s not just about the technical and financial aspects; for many people, it’s personal.
They’ve spent 20 years building a business and now they have to sell it—and that can be emotional.
