The Great Rise of German M&A Activities in Q3 & Q4 2024

The positive trend should continue in 2025!

And the role of PE?

Dr. Winfried Weigel, Managing Director of weigelCF, www.weigelCF.com

Frankfurt, 30 January, 2025

(pl. also see my earlier publications on German M&A)

Q4/2024 started with a splendid October (see report on 7 Oct 2024) and continued with a total of 9 announced Billion-Euros-Deals in Q4/2024 with a total deal value (“DV”) of €42 billion (“bn”). And we saw the development of the largest public takeover in Germany for years, triggered by the German government / MoF in Sep 2024 with the placement of a 4.5% Commerzbank stake in an accelerated bookbuild to a single strategic buyer at a price of €13.20 per share (close to market price). Unicredit immediately bought another 4.5% of Commerzbank shares in the market and now controls just under 30% of the Commerzbank shares and expressed its intention to pursue with a friendly public takeover offer and the integration of Commerzbank into Unicredit. The shares are trading above €18 p. sh. and we expect a possible takeover offer to happen above €20 p.sh., equivalent to a value of €24 billion or higher.

Based on our database analysis we extracted the following numbers that need to be treated with caution: We counted

• 2,020 deals (thereof 365 with revealed deal values) with a German target and a DV of €98.7bn (for the 365 deals with deal value);
• thereof 1,062 deals (174 with DV) with a German buyer (“domestic M&A”) and DV of €22,3bn;
• 958 (191) foreign acquisitions in Germany with a DV of €76.4bn;
• 842 (380) foreign acquisitions by a German acquiror with a DV of €56.4bn;
• 158 (41) German divestitures abroad with a DV of €12.3bn.

This would mean a tremendous increase of M&A activity in 2024 that came close to the level reached in 2021. If you take a closer look at the specific transactions you may find out why these numbers are wrong? We as user of the databases may not have used the correct filters? We have discussed these issues in earlier articles, i.e., (1) inclusion of funding rounds for start-up, scale-ups and mature companies, the result of it is a subscription of new shares reflecting a new ownership, (2) buy-backs of shares being included, (3) increasing stakes by controlling shareholders and squeeze-outs of minority shareholders, (4) PE Funds investing in minority stakes and subsequently selling financial investments, (5) Asset Managers making large direct investments in private and listed companies, (6) Infrastructure and ESG investors making direct investments into infrastructure companies and renewable energy plants (organized as private companies), (7) Real Estate investors making direct investments into or acquisitions of real estate portfolios organized as private companies, (8) acquisitions of IP and product rights packaged as corporate transactions.

We keep a clear and narrow definition of the M&A market: acquiring corporate control. Corporate control is defined in most jurisdictions that have takeover regulations for listed companies. In most jurisdictions an acquiror is obliged to make a public tender offer to all shareholders upon surpassing certain ownership levels, the most common is 30% of the share capital or the votes. The next threshold is 50%. We may apply even stricter criteria for private companies and exclude financial investments.

What is the consequence for us? We usually strip-out all transactions that do not meet our strict M&A criteria. Of 36 Billion-Euro-Deals worth €111bn with a German target, acquiror or seller announced in 2024 we excluded 13 deals worth €20bn and we added the Commerzbank deal which is intended and initiated, but official negotiations are not yet taking place, and a formal public takeover offer has not been launched either.

As a result we counted 24 Billion-Euro-Deals with a combined DV of €115bn which already exceeds the aggregated DV of all German M&A transactions (target, buyer or seller are German) in 2023 with a combined deal value of €108bn resulting from 233 M&A deals with identified DV.

We counted another 51 likely M&A deals worth €18.7bn between €100mn and <€1bn. The German M&A market 2023 was – including the Commerzbank takeover - substantially stronger than the aggregated deal value of €134.5bn reached in 2022. However, it remains well below the record volume of €175.5bn reached 2021.

Let us focus on the 24 Billion-Euro-Deals 2024 summarized in the Transaction Table.

Table 1: Top 24 German M&A Transactions 2024

While the quarterly split by no. of deals with 6 in Q1, 5 in Q2 and Q3 and 8 in Q4 was quite even, Q3 was the strongest quarter with a combined €50bn in DV and H2/2024 accounted for a total of €89bn or 78% of the DV from Billion-Euro-Deals.

2/3 of the deals worth €86bn had German targets, 13 of the 16 German acquisitions worth €82.5bn had a foreign buyer, seven PE Investments by US PE houses (3 secondaries) and six strategic acquisitions, none with a US buyer.

The foreign strategic acquisitions in Germany accounted for 52% or €60bn of all Billion-Euro-Deals, the seven US PE investments accounted for €23bn or a further 20%.

The top 3 deals all with foreign strategic investors accounted for €54.4bn or 47.4% of the DV of Billion-Euro-Deals: (1) the €24bn attempted Commerzbank public takeover by Unicredit, (2) the successful €16bn public Covestro takeover by Abu Dhabi Oil Co. ADNOC, and (3) the €14bn private DB Schenker takeover by Danish DSV Panalpina from Deutsche Bahn, all announced within three weeks in Sep/Oct 2024.

At least we could see seven foreign corporate investments, six foreign acquisitions and the €2.1bn VW / Rivian JV investment, with a combined DV of €26.6bn and accounting for 23% of the aggregated DV of all Billion-Euro-Deals. Siemens acquired the US company Altair Engineering Inc. in a USD 11bn public takeover and Robert Bosch acquired in a private USD 8bn deal the heating and climate business of Johnson Controls including its JV with Hitachi. Other German corporate buyers include AutoScout24, SAP, Boehringer Ingelheim and Henkel.

The largest domestic corporate takeover was the €1.14bn acquisition of About You AG by Zalando AG from the Otto Group in a public takeover (Deal no. 21).

We also saw in November the €2.4bn public takeover bid for Evotec SE by US company Halozyme Therapeutics Inc., but Halozyme Therapeutics withdrew its offer because Evotec refused direct meetings. The smallest Billion-Euro-Deal (Deal no. 24) is the announced €1bn public takeover bid for Salzgitter AG in December 2024, launched by its qualified minority investor GP Papenburg AG together with TSR Recycling (Remondis Group).

And the Role of PE in 2024?

The top 5 deals 2024 were deals without PEs. That accounts for the first €72.5 bn DV in 2024 or 63% of allBillion-Euro-Deals in 2024.

Of the remaining 19 Billion-Euro-Deals 2024, 13 had a participation of a PE house as buyer or as seller (€32.8 DV equivalent to 28.5% of the DV of all Billion-Euro-Deals).

Six of the 13 Deals PE Deals with DV of €9.9 bn were classical PE exits to strategic buyers, we also include them in the category strategic acquisitions.

The three largest PE transactions 2024 plus deal no. 14 were Secondaries with a combined DV of €16.8nm or 14.6% of the total DV of all Billion-Euro-Deals.

In total, PEs were net sellers in the category of all Billion-Euro-Deals with 10 divestitures with DV of 26.7bn versus 7 acquisitions with a DV of 22.9bn.

In general, PEs play a bigger role in very large transactions due to the tremendous funds accumulated in the top PE houses that seek attractive investment opportunity. These large amounts of institutional money seeking investments is a main reason for the length of the bull markets since the large financial crisis 2008 to 2010.

Turning it around, we can conclude: 17 of all 24 Billion-Euro-Deals (almost 75% of deals) were strategic acquisitions with a total DV of €92 bn or 80% of the aggregated DV of all Billion-Euro-Deals.

Outlook for 2025:

• Global German players will continue to invest abroad
• Strong German stock market with an increase of 19% in 2024 and a further increase of 9% YTD is a reflection of that trend
• Lot’s of Dry Powder by institutional investors with target market Europe or DACH looking for attractive assets
• German Industrial Production will shrink again in 2025 fostering acquisitions abroad
• Interest rates might further decline in 2025 providing cheaper money for acquisitions
• Inflation is further converging to the target rate of 2% p.a. providing leeway for interest rate cuts
• High Investment needs in Infrastructure, Energy & Digitalization may attract foreign investors
• Large foreign takeovers for attractive German companies will continue and increase in size

These are strong credentials for further growth of German M&A activities, both in Germany and in particular for further German foreign investments.

External growth is cheaper and quicker than organic growth, and transformation is far easier and quicker to implement with M&A.

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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