German M&A Market 2023 – Positive Signals for a Recovery in 2024?
Winfried Weigel
corporate development, business development, Corporate Finance, Capital Markets, Mergers & Acquisitions, restructurings, change management, interim management, IPO, coach, startup advisor, Private Equity, Venture Capital
Dr. Winfried Weigel, Managing Director of weigelCF, www.weigelCF.com
Frankfurt am Main, 31 January, 2024
(pl. also see my earlier publications on 28 Aug, 30 Jul and 16 Apr 2023)
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The M&A activity in Germany contracted further in 2023, decreasing by more than €8 bn to an aggregate transaction value of just €63 bn, which is approx. one third of the value of the Mannesmann takeover by Vodafone in the year 2000, and about the size of the largest US transaction 2023, Exxon Mobil′s USD 65.3 bn takeover offer for Pioneer Natural Resources. This represents a significant drop from 2022's level, which itself was already 45% below the 2021 figure of €129 bn. The cumulative deal value in 2023 is attributable to only 136 deals in Germany with reported deal values, predominantly larger deals. In total, 1,348 domestic M&A deals were recorded. The previous year still showed 169 deals with reported deal values of at least €10 million each.
The overall German M&A activities encompasses both, the M&A activity in Germany, and the activity of German buyers and sellers outside Germany. In 2023, this foreign market comprised 97 deals with a cumulative value of €44.7 bn and a total of 643 reported transactions, 67 German acquisitions abroad (incl. four deals with German sellers), amounting to a total deal value of €18.3 bn, contrasted by 30 divestitures of German sellers to foreign buyers totaling €26.3 bn. In total, 128 German divestitures abroad were observed, resulting in a net divestment of German companies of €8bn.
Combining the German domestic and the German foreign M&A activity, the total German M&A deal value 2023 amounts to €108 bn resulting from 233 transactions. This is a 20% decrease from the €134.5 bn achieved in 2022 and 38.5% less than the €175.5 bn recorded in 2021. While the numbers of completed transactions, particularly comparing domestic transactions with foreign acquisitions and foreign acquisitions in Germany with German acquisitions abroad, were relatively even, a clear dominance of foreign buyers in Germany, particularly for large transactions, and also compared to German buyers abroad is evident when considering the cumulative deal values. German companies and investors should consider counter-cyclical investments to enhance their competitiveness for future growth phases. The same applies to public investments in infrastructure. In a sharp contrast to the number of reported transactions, the extremely weak third quarter in terms of deal values dashed all hopes of a turnaround of the M&A market in 2023.
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Exh. 1: Breakdown and Development of Deal Values by Quarter
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Comparing the balance of German buyer activity abroad with acquisitions by foreign companies and investors in Germany, shows a clear dominance of foreign investors in Germany. 67 acquisitions by German companies abroad, worth €18.3 bn, were overshadowed by 113 acquisitions by foreign companies in Germany, valued at €53.7 bn (approximately a factor of 3). The second and fourth quarters were each significantly stronger than the first and third quarters, with the second quarter slightly ahead of the fourth quarter, and the third quarter most likely the weakest quarter for a decade. In total, 647 foreign acquisitions in Germany were observed, compared to 539 German acquisitions abroad.
Exh. 2: Breakdown and Development of No. of Deals by Quarter
The importance of large transactions in the market was again clearly demonstrated. More than a fifth of the aggregated deal value was attributed to the two largest deals, each with double-digit bn euro deal values. Two-thirds of the value was accounted for by the 22 bn-euro deals, and nearly a third by the 102 deals in the hundred-million range. Only 2.6% remained for the 110 transactions up to €100 million. This distribution (Table 1) has remained largely unchanged from the previous year.
Table 1:??Breakdown and Distribution of 2023 Deals According Deal Value
The weak performance of the M&A market in 2023 was accompanied by a much stronger stock market than the previous year. In 2022, the DAX30 closed with a 12.4% decline, following a gain of +15.8% in 2021. In 2023, despite mediocre economic indicators, stock markets strengthened by more than 10%. Particularly as larger transactions often involve publicly traded companies, the renewed decline in M&A activity in 2023 appears even more dramatic against the backdrop of rising stock markets. Interest rate increases came to a halt globally at the end of 2023, and the current consensus expectation is that interest rates may fall again from mid-2024, which should lead to a noticeable improvement in funding options and terms for corporate takeovers over the course of 2024.
As in previous years, we had to systematically review and significantly correct the collected data. We eliminated 145 German funding rounds with a total value of €4.75 bn and 269 foreign funding rounds with possible German investor participation, totaling €8.9 bn (see publication on the German startup and scale-up funding market on December 30, 2023). Additionally, we excluded purchases and divestitures of other asset classes such as renewable energy plants, real estate investments, IP and product rights, factories, infrastructure facilities, and passive financial direct investments, as well as certain capital market transactions and internal corporate restructuring transactions, compiling them separately in an alternative M&A league table, which included 72 German transactions with a total deal value of €22 bn.
Table 2: League Table of the Top 20 M&A Transactions 2023
Table 2 provides an overview of the top 20 German M&A transactions in 2023, representing an aggregated transaction value of over €70 bn, nearly two-thirds of the total transaction volume for the year. Among the top 20 deals, there are 13 acquisitions in Germany, nine by foreign buyers, half of that by PE investors, and only four German acquisitions. Private Equity investors were involved in 13 of the top 20 transactions, nine times as buyers and eight times as sellers, thus four times on both sides. The most important foreign market from a German M&A perspective are the United States, with three major German corporate acquisitions in the USA and six takeovers by US buyers, half of them in Germany.
The top three and the fifth-largest transaction (totaling >€35 bn) were sales by German strategists Viessmann, SAP, BASF, and Bertelsmann, two abroad and two domestically. The largest acquisition by a German strategist in 2023 was the public €4 bn takeover of a Fintech software company in Denmark by Deutsche B?rse AG, ranking fourth. This was followed by four Private Equity purchases of German companies in positions 6, 7, 8, and 10, interrupted by the sale of Software AG's US business in position 9, which was initially acquired in Q2 by US PE investor Silver Lake Group (position 7). The re-nationalization of the local and long-distance heating business of the city of Berlin from Vattenfall for €2 bn ranked 11th, and the takeover offer to the remaining free shareholders of the previously publicly traded German subsidiary of Telefonica SA (O2) ranked 12th.
Conclusions:
Are these the credentials for stronger M&A Activities in 2024? Why not? External growth is cheaper and quicker than organic growth, and transformation is far easier and quicker to implement with M&A.
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