Key takeaways:

Strategic buyers and private equity firms are focusing on resilient, high-growth businesses, with mid-market transactions dominating the landscape.

AI and automation are reshaping valuations and deal dynamics, becoming essential for operational efficiency and future exits.
 

Despite economic challenges, M&A activity is expected to increase into late 2025, driven by consolidation and legislative changes.

The European business services sector is experiencing a defining moment in its mergers and acquisitions (M&A) landscape. Multiple factors – from economic volatility to technological innovation – are reshaping the way deals are structured and executed. While challenges persist, strategic opportunities make the sector an attractive space for investors.

Strategic buyers and private equity firms drive resilient deal activity

Despite global economic headwinds, M&A in the business services sector remains resilient. Jonathan Wade, Partner at RSM in the UK, notes, “Strategic buyers and private equity (PE)-backed trade remain at the forefront, especially those looking to expand into complementary sectors, niches, or geographies. There is strong demand for businesses who can prove their resilience and the ability to grow, particularly those with repeat revenue streams.”

Business services cover a wide range of areas including areas such as staffing and logistics to business process outsourcing to broad areas across testing, inspection, compliance and certification (‘TICC’) and crossing into professional services generally. The TICC sector continues to be very active with a number of active parties following a buy and build strategy both nationally and internationally. Separately, professional services and accounting subsectors are particularly active, with unprecedented private equity (PE) interest disrupting traditional markets. Wade highlights an interesting trend in the UK staffing industry, where professional services – rather than the usual tech sector – have dominated M&A activity in recent months.

Across Europe, activity is similarly robust, as Daniel Kroes, Transactions Partner at RSM in Belgium, explains. "Valuation and due diligence services have been in high demand recently, though new sales mandates remain limited, likely due to broader economic caution.” Meanwhile, technological progress in areas like AI is serving as a growth engine in other regions, as Marcel Vlaar, Partner at RSM in the Netherlands, adds, “We are already seeing consolidation driven by the need to share investment costs in spheres like audit firms, with many more sectors expected to follow this trend.”

Economic pressures challenge dealmakers but drive innovation

The business services M&A market is grappling with several economic challenges, including rising capital costs and valuation disparities. Wade points out, “Interest rates in Europe have decreased compared to last year but are still far from the near-zero levels of previous years. Despite this, many large corporates have refinanced, meaning capital is available – though buyers are noticeably more selective.”

Valuation gaps remain a point of contention, with some sellers clinging to post-pandemic price expectations. Wade continues, “This gap is narrowing, with investors using creative deal structures like earnouts and deferred payments to bridge the divide. However, businesses that need to resize their cost base or rebuild EBITDA (earnings before interest, taxes, depreciation, and amortisation) often delay entering the market.”

Labour shortages and inflationary pressures are also complicating transactions. Kroes discusses how these challenges impact firms, saying, “Energy costs and inflation are forcing companies to explore efficiency gains and tighter cost control. Price resistance from clients makes it difficult to pass these costs along.”

Mid-market transactions remain the backbone of M&A

Mid-market transactions are the primary driver of M&A activity in business services across Europe. Kroes notes that Belgium’s middle market remains “healthy and active, with no tangible shifts towards larger or smaller deal sizes.” This trend extends to other regions in Europe, where Vlaar highlights the predominance of mid-market transactions in sectors like audit, tax, and consulting.

Wade echoes this, particularly within the staffing sector. “Most deals are mid-market, with fewer large-scale transactions or new PE platform deals. EBITDA challenges and uncertain economic conditions mean many larger businesses are still in rebuilding mode.”

What sets the mid-market apart is its ability to adapt to niche opportunities. According to Wade, businesses looking to exploit new tech or create tailored service packages often target mid-market players, offering flexibility and scalability in a somewhat fragmented landscape.   TICC is an obvious example of M&A activity in a fragmented segment.

Private equity’s cautious aggression

Private equity remains a key player in European business services, though its approach has become more selective and varies across Europe. Wade explains, “We see PE firms maintaining their focus on reshaping and supporting management teams, leveraging new expertise in areas like AI and data transformation. Social impact PE firms, willing to take minority stakes, are also gaining traction, especially in sectors like education.”

In other regions of Europe, like Belgium, family-owned businesses continue to attract PE interest. Kroes remarks, “Post-pandemic, many family business owners are prioritising succession planning, making PE’s structured exits and liquidity options increasingly appealing.” By contrast, Vlaar suggests the Netherlands is witnessing fewer family-owned deals but more activity in audit and consulting, with several networks actively consolidating smaller peers through PE-backed growth strategies.

Technological integration also shapes deal dynamics. Vlaar notes, “The notable PE deals are often driven by the need for firms to adapt to emerging tech demands.” For instance, firms looking to implement AI solutions or differentiate themselves as tech-enabled are attracting significant investments, but they must present these advances credibly to withstand investor scrutiny.

Technology’s growing influence reshapes valuations

The surge of AI and automation is transforming M&A in consulting, staffing, and facilities management. Wade views this adoption as a growing necessity. “Demonstrating a strong AI strategy may not be essential now but will be critical for future exits,” he says. “Post-deal, investors are putting significant effort into integrating AI to enhance operational value.”

Still, a tech maturity gap persists across the market. Kroes notes, “While technology has the potential to transform valuations by boosting efficiency and decision-making, many companies struggle to implement it effectively. This gap often becomes a valuation drag.” Vlaar sees AI as a scalability tool, pointing out its role in making existing operations more efficient while paving the way for long-term growth.

Beyond AI, data analytics tools remain foundational to the due diligence phase of M&A transactions. Wade highlights a shift towards more granular data usage. “Dynamic databooks – as opposed to traditional dashboards – are becoming standard, allowing for deeper insights into operational financial metrics,” he states.

A cautiously optimistic outlook

What lies ahead for M&A in European business services? The consensus among experts is moderately optimistic. Wade foresees greater activity towards the latter half of 2025. “The second half of the year and early 2026 should see increased activity, as businesses start preparing for more serious exits. However, completed deal volumes may not tick up until 2026.”

Kroes expects political and legislative developments to serve as major catalysts. “The looming capital gains tax change in Belgium is already driving urgency for valuations and divestment planning. This is likely to influence activity in the next six months, though broader macroeconomic uncertainty may lead to delays in actual deal completions,” he comments.

Meanwhile, Vlaar anticipates ongoing consolidation, particularly in audit and consulting firms. “We’re entering a phase where larger network firms will incorporate newly developed platforms. It’s a cycle of consolidation that is far from over,” he explains.

Europe’s business services sector may be navigating complex waters, but it is far from stagnant. The coming months promise a mix of challenges, innovation, and opportunity for dealmakers across the continent.

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