German M&A 2023 year-to-date: consolidation on again lower levels

Did we already see the deal of the year with the sale of the Viessmann heat pump business for € 12 billion announced in April?

Based on our analysis of mergermarket data, we identified 852 M&A transactions involving German companies or investors with a combined value of €46.8 billion for the H1/2023. 589 transactions (69%) were domestic deals (in GER), while 263 were international deals (foreign deals by German buyers or sellers). The domestic market accounted for €29.5 billion (63%), and the international market for €17.3 billion of the total deal value (DV).

It is worth noting that the recorded total deal value is based on only 99 deals (11.6%) with known or disclosed deal values, which is both a historically low percentage in terms of quantity and value. The actual total value of all transactions should be substantially higher, although larger deals, especially those involving publicly listed companies, are more likely to be known than smaller deals, in particular Private Equity (PE) deals or deals with privately held firms. Many deals are also not actively announced and only make it into the league tables at a later stage, due to reporting of PE houses or other institutional investors at a later stage.

We also experienced an extended summer break in July and August with just over additional €10 bn total DV, but resulting from 29 deals with revealed deal values, mainly in Germany, but mostly cross border.

Largest Deal a €12 billion divestiture to a US market leader

The M&A market has experienced another decline of one-third compared to the first half of 2022, following a 21% decrease from the peak year of 2021. The second quarter was particularly weaker than the first quarter in the domestic market, despite the largest transaction of the year so far, the announced sale of Viessmann Climate Solutions SE, the heat pump business of Viessmann Group, for €12 billion to the American HVAC and building automation specialist, Carrier Global Corporation.

A better second half?

On the other hand, the international market shows signs of recovery in both German acquisitions and German divestitures during the second quarter, although still at a relatively low level overall. It is still difficult to predict the Q3 but we see increased activity. More than 50% of the €10 mn DV were announced over the past two weeks. Could this be seen as a trend for an active fall season?

Compared to Switzerland?

For comparison, let's take a look at Switzerland, our neighboring country. In H1/2023, we identified a cumulative deal value of CHF57.3 billion, also from 99 transactions with disclosed deal values. The largest Swiss transaction was a CHF 29.3 billion acquisition of the commodity company Glencore in Canada, leaving a remaining deal value of just CHF28 billion for Switzerland without considering the largest transaction. In contrast, Germany had a deal value of €34.8 billion (CHF 33 billion). For 1 EUR you only get 95 Rappen (0.95 CHF). In total, we found 352 M&A deals with Swiss involvement, which is more than 40% of the German deal count.

Buyer′s nations in Germany?

The German M&A market (deals in Germany) includes 277 cross-border acquisitions by foreign buyers, with a cumulative deal value of €27.2 billion from 51 deals with known deal values. This includes a number of transactions by local German subsidiaries or holdings. These cross-border acquisitions represent 58% of the total German M&A market. The biggest foreign investor nation are the USA, with 50 acquisitions and €15.9 bn DV from 11 deals, followed by the UK with 25 acquisitions and €3.4 bn DV from 4 deals, as well as France with 28 acquisitions, the Netherlands with 26 acquisitions, and Sweden with 20 acquisitions, although most of these deals were made without disclosing a deal value.

Quiet domestic market

The domestic M&A market (German targets and buyers) is still larger in terms of the number of deals, with 312 transactions. However, in terms of value, it only accounts for €2.3 billion, representing 7.8% of the German M&A deal value. Among these domestic deals, there were only 7 transactions with a disclosed deal value ranging from €3 million to €1.55 billion, including the public acquisition of steel trader Kl?ckner & Co. by an investment company that already secured 41.5% of the shares. Four of the top six transactions with a deal value involved private equity participation on the buy-side (3) or the sell-side. Apart from the Kl?ckner acquisition and the purchase of Dürr AG, German buyers, especially strategic investors, have been relatively cautious with acquisitions in their home market.

Balance of German foreign M&A activity

The activity level of German investors abroad was not significantly higher. While there were 238 acquisitions by German investors, and only 42 sales. Of the 46 deals with disclosed transaction values, 30 were acquisitions. However, the total deal value of the investments was €10.35 billion, only slightly higher than the value of divestitures, which amounted to €10.1 billion. As a result, there is no significant net economic growth of German companies in foreign markets. It is worth noting that the value of the 208 transactions without disclosed deal values is likely to be considerably higher than the value of the 26 sales without transaction values. However, it is assumed that these transactions are generally smaller in scale compared to the ones with disclosed deal values.

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Table 1: Top 20 M&A Deals involving German Companies

Table 1 provides an overview of the largest M&A transactions involving German companies in H1/2023. German involvement is highlighted in yellow for a quick overview of target companies, buyers, and sellers. Private equity investors are marked in green, and Q1 and Q2 deals are color-coded differently. Out of the top 20 German M&A deals, 11 were acquisitions in Germany, with 8 involving private equity participation (6 as buyers and 2 as sellers). Overall, financial investors were involved in 11 of the top 20 deals, including no secondary PE deals (i.e., the sale of a company from one PE investor to another).

Corporate Investors

The second-largest M&A deal with German involvement was Deutsche B?rse AG's €4 billion takeover offer to the shareholders of the Danish financial software company SimCorp A/S. The third-largest deal was the €3 billion sale of Majorel Group Luxembourg S.A., an outsourced services company based in Luxembourg, to the French competitor Teleperformance SE by Bertelsmann SE and the Moroccan Saram Group SA. Thus, the three largest deals were strategic acquisitions by a corporate from another.

Private Equity Investors

The next three largest deals involve German companies selling to international PE investors: the €2.7 billion sale of a 57% stake in Synlab AG to Cinven, the €2.6 billion acquisition of the publicly traded Darmstadt-based Software AG by Silver Lake, and a €2 billion minority investment in Griesheimer Gasegesellscindustrial gases manufacturer Messer SE & Co. KG (formerly known as Messer Griesheim) by GIC Capital from Singapore. All of these deals were financially motivated. The largest domestic deal ranks 19th with a purchase price of €440 million (Deal Value €480 million), involving the acquisition of BBS Automation GmbH by Dürr AG from EQT Private Equity in Sweden, a strategic move for the buyer and financially motivated for the seller.

German Foreign Acquisitions

Between Deutsche B?rse AG on rank 2 and Dürr AG 19, we see Talanx AG Versicherungen, a company listed on MDAX, with a €1.38 billion acquisition in South America, ranking 9th, DAX member Infineon AG with a €780 million acquisition in Canada, ranking 11th, and Covid vaccine manufacturer BioNTech SE with a €637 million acquisition in the UK, ranking 15th, joining the group of the five largest domestic strategic buyers. Among the top 20 deals, there were four strategic acquisitions of German companies abroad and one domestic deal, as well as four strategic acquisitions by foreign buyers in Germany, albeit with much higher transaction values. In total, 9 sales of German companies to foreign buyers accounted for €23 billion, which already represents half of the total transaction value in H1/2023.

No Time for SPACs

Deal 16 was a De-SPAC (Special Purpose Acquisition Company) transaction, also known as a Blank Cheque Company, where an American SPAC investor acquired the company Gebrüder Schmidt GmbH & Co. KG, a printed circuit boards manufacturer. De-SPAC transactions involve the reverse takeover of an operating company by a capitalized acquirer that serves more as a financial means for the acquired company rather than a traditional acquisition. SPACs seem to be a thing of the past, booming on the back of a negative interest rate environment that lured institutional investors to parc money at low but positive interest rates in SPAC companies.

Breakdown According Deal Value

The "Top 20" M&A deals account for nearly 82% of the reported deal value. However, only 11.6% of the identified M&A deals showed a deal value. This discrepancy leads to a high level of uncertainty in the total deal value. This is different in Switzerland, where over 28% of the transaction values are known.

Table 2 illustrates the distribution of transactions with deal values according to different size categories. The top 10 deals, each with a deal value of over €1 billion, collectively amount to €32.2 billion, representing 68.8% of the total deal value. The top 18 deals with a deal value of over €500 million make up 79.7%, while the top 53 deals with a deal value of over €100 million account for 97.2%. On the other hand, all other 23 deals with a deal value of up to €100 million make up only 2.7%.

Table 2: Distribution of deals according to deal size

Funding of Start-ups and Scale-ups

The discrepancy between the (higher) aggregated deal value of M&A databases and our numbers can be explained by the fact that in general, M&A databases tend to include all kinds of corporate transactions, including those that do not involve changes in corporate control. This includes, i.e., financing rounds for young growth companies with high capital needs, as well as purely financial investments, equity increases, squeeze-outs, restructurings, share buybacks, spin-offs, and investments into other asset classes. E.g., we identified a total of 95 funding rounds for German companies, of which 81 (85% with DV) had disclosed financing volumes totaling €2.4 billion. The database selection included an additional 166 foreign funding rounds with supposed German involvement as investors, with 151 (91% with DV) having a funding value of €5.1 billion. These funding rounds are easy to separate, it is more challenging and cumbersome to search for the other non M&A transactions, on a deal-by-deal basis.

Top 20 Non-M&A Deals

To illustrate the variety of Non M&A Deals, we listed the "Top 20" Non-M&A deals with German involvement in Table 3, totaling €8.1 billion in deal value. In total, we excluded 46 deals as "Non-M&A deals," of which 32 deals (70%) had deal values amounting to a total of €8.4 billion.

Table 3: Top 20 German “Non-M&A” Deals H1 2023

In addition to these 307 transactions with a cumulative deal value of €15.9 billion, we excluded another 242 foreign transactions with a cumulative deal value of even €18.2 billion because we couldn't identify any involvement of a German company or investors. The deal descriptions made this quite obvious, raising the question why these transactions cannot be allocated correctly? Unfortunately, the number of "bad" or incomplete data has been increasing in recent years, as transactions with non-identifiable investors or sellers are automatically registered under many or all countries and regions. This leads to significant inflation of M&A statistics, both in terms of the number of transactions and the cumulative deal value.

Q3 and Outlook

Q3/2023 so far has been weak with a aggregated deal value of €10.6 billion resulting from 29 M&A deals and possibly as many as 240 announced M&A deals. The four largest deals all announced within the past two weeks accounted for just more than 50% of the reported deal value. The largest deal just announced last week was the €2.4 billion sale (privatization) of the (traditionally coal based) energy generator and energy project developer STEAG (stands for Steinkohle AG or Hard Coal Limited) by its public municipal owners (Stadtwerke or municipal utilities) to the Spanish private equity investor Asterion, apparently as one part of the “German Energiewende”.

Germany on a decline? It is certainly no longer the (still fuel powered) economic engine in Europe, stagnation at best for 2023, and a tiny fraction of a percent real growth in 2024? In a still rising interest rate environment, a Euro 5% per cent below the value of the Swiss Franc, most likely declining further, inflation level above 6% on an annual basis and 2 ? times the 10 year bond interest rates level of currently 2.5%, high energy prices and a laggard in digitalization, industry production persistently declining, and a war in Europe. But stock market are near historic highs, in line with global stock markets in the western world.

The M&A activity level is low, the last two months showed very low foreign investment activity, smaller transactions but recently a growing number of transactions (we still have to do the case-by-case analysis). And the big contributor will be foreign investors in Germany, and a tremendous demand for alternative investments on side of institutional investors, including lots of dry powder at private equity houses. Plus, the large German corporates are all global players and most have a strong capital structure. Therefore, we do expect a recovery over the course of the next 12 months.

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In case of questions or comments please do not hesitate to contact me.

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Dr. Winfried Weigel????? [email protected]????? +41 76 443 2001