2018 M&A Outlook Good, Concludes Mergermarket Germany Forum

Noerr was once again a main legal partner for the annual Mergermarket Germany Forum, held in Düsseldorf on 21-22 March 2018.

The event provided finance leaders with the latest trends in capital raising and M&A and attracted over 400 borrowers, acquirers, lenders and investors, with more than 50 speakers contributing expert discussion and networking. Keynote addresses were given by the economist Thorsten Polleit and Evonik’s Chief Digital Officer Henrik Hahn.

Thomas Schulz, head of Noerr’s London office, co-chaired the two-day event, which also included panel participations from partners Florian Becker, Tom Beckerhoff, Michael Brellochs and Georg Schneider.

The conference highlighted the positive outlook for the German economy, with favourable financing conditions and a German government now in place. Geo-policy and high debt levels were seen as the greatest risks. Other issues discussed included:

Review of 2017

• 2017 was a strong year for M&A in Germany, with 948 inbound and outbound deals with a combined value exceeding €110bn, 36.9% higher than the €81.2bn total in 2016.

• The rise was propelled by continued strength in industrials and chemicals. This sector generated 311 deals worth €77.8bn in 2017, the highest value and number of deals on record. The €40.5bn deal between Praxair and Linde represented a 52.1% share of this value. Other major deals included Siemens/Alston and Uniper/Fortum.

• The automotive sector also saw a clear uptick in dealmaking in 2017, with 50 deals worth €5.6bn announced. These included the US-based OEM LKQ Corporation acquiring automotive parts distributor STAHLGRUBER for €1.5bn; PSA Peugeot-Citroen acquiring Adam Opel and Vauxhall Motors for €1.1bn; and the Porsche and Piech families increasing their stakes in Porsche for €1.2 bn.

• The PE industry was strong, with large cap deals such as ista, STADA, ceramtech and others. There was also strong mid-market and portfolio activity, with deals such as Lexington Partners/SevenVentures, Bridgepoint/Bike24 and Silverfleet/7days.

Themes and Trends

• High prices require discipline and a clear understanding of where the unique angle for the investment is.

• Innovation through M&A in order to pursue the newest technologies, driven by industry 4.0, a German phenomenon to digitise the shop floor. For some industries, such as chemicals, digitalisation can be disruptive; but for most, innovation will more likely lead to efficiency gains (e.g. Uber) rather than a fundamental change of business models (e.g. iPhone). In other sectors, companies such as Daimler are leading the way, with around 15 transactions designed to advance digital business models.

• Private Debt accounts for around 30% of German high yield financings, with the trend of covenant light or loose documentation continuing. There is likely to be a rise in the number of debt funds, but not all will survive. The key test will be interest rate raises and the potential for restructurings.

• China inbound activity remains strong,  although the political climate has moved towards greater regulatory scrutiny in Germany, the EU and the US.

• Family offices can have many advantages in the search for assets, via long holding strategies.

• Shareholder activism plays a vital part in the German M&A scene.

Thomas Schulz commented: “2018 looks like it will be a successful year for M&A in Germany. Digitalisation is a particularly interesting development, with transactions by companies such as Daimler showing how digital business models can be aligned with industry 4.0.

“The restructuring of the insurance and banking industries will remain a key issue as demonstrated by run-off transactions and the successful privatisation of HSH Nordbank.

“The current environment supports large and complex deals, such as those involving STADA,  RWE/ E.ON/ Innogy, and Kering/Puma recently. There is also an increased attractiveness of IPOs, as shown by Hello Fresh, Delivery Hero, Healthineers and DWS.”