German Companies Take Active Part in Mega Deals
Investment bankers are rubbing their hands in excitement as more and more German companies are involved in mergers and acquisitions that amount to billions. But the spectacular deals hide a problem, Germany’s Handelsblatt reports.
Frankfurt, Germany. A takeover worth billions is coming up next – now also in Germany. After several years of stagnation, the local investment bankers are pleased about the thriving businesses that secure them lavish bonuses. Many are hoping for a year-end rally.
So far in 2013, the volume of announced mergers and acquisitions (M & A) with German participation amounted to 91.8 billion dollars. This is an increase of 16 percent over the previous year and it is also the strongest year since the crisis of 2008, as estimated by data provider Thomson Reuters, which published the latest figures regarding merger events on Wednesday. For comparison, in the course of this year, the volume of M&A worldwide is stagnating at about 1.64 trillion dollars.
Especially transactions like the 13.5 billion dollar offer from Vodafone for Kabel Deutschland or the 11.4 billion dollar bid by “German Telefonica-daughter” o2 for E-Plus bolster the balance for the German market. “These deals, however, mask an actually flagging M&A market: the activity within the medium size enterprise segment has declined year on year,” according to Thomson-Reuters expert, Leon Saunders Calvert.
In the view of Macquarie-Germany CEO Rainer Langel, one reason for the stagnation of middle-sized takeovers is the fact that, at the end of 2012- early 2013, a number of transactions did not work out. This has unsettled some companies. “But I expect that even the mid-market shall revive considerably at the end of 2013.”
Other bankers as well admit that many CEOs still stand and wait on the sidelines because of the uncertain economic situation in Europe. “But German companies will continue to seek access to developed markets through targeted acquisitions or to expand existing positions,” says Wolfgang Fink with certainty, who is responsible for investment banking in Germany and Austria for Goldman Sachs. “Many companies have large cash holdings and strong balance sheets, from which they can invest. Funding markets are open and low interest rates support companies in their expansion plans.”
Similarly confident is his colleague, Alexander Gehrt of UBS: “We expect and hope that these larger deals have a signaling effect and give other companies new courage to take more initiative as well,” he says.
Fink and Gehrt have reasons for optimism. Their homes take the top spots in the current “League Tables” in German M&A business,. In each quarter of the highly anticipated rankings of those investment banks that are the best in the business, Goldman managed to take the first position with its consulting services in 15 deals and a transaction volume of 45,9 billion dollars. Goldman thereby dethroned the local market leader, Deutsche Bank. UBS follows in second place with 37 billion dollars. This time, Deutsche Bank has to settle for third place in their home country.