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Steve Roberts
EMEA Private Equity Leader at PwC Germany
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Private equity becomes an important driver of M&A activities in Germany
The Covid-19 pandemic and lockdown as well as political and economic risks have meant that significantly fewer deals between investors and German companies have been announced to date in 2020 compared to the preceding year. Most notably, companies from the North American and Asia-Pacific regions have been investing less than in 2019. Contrasting this, private equity investments have hit a new record level and are subject to less pronounced fluctuations. These are some of the key findings of our study “Deals Watch Germany. M&A Activities by Strategic and Financial Investors in 2020” (“Deals Watch Germany. M&A-Aktivitäten von strategischen und Finanzinvestoren 2020”). The study takes account of all mergers, company acquisitions and sales, leveraged buyouts, spin-offs, privatizations and acquisitions of minority interests that were announced in the period from January 1, 2016 to September 30, 2020.
“At 33 percent, the ratio of private equity investments in Germany has reached an all-time high.”
The study at a glance
Deal activities decrease by almost one quarter
By the end of the third quarter of 2020, significantly fewer company acquisitions and sales had taken place in Germany than in 2019. Between January 1 and September 30, 2020, a total of 1,233 deals were concluded. Within the same period of the prior year, 1,621 transactions had taken place – a decrease of 24 percent. However, the PwC analysis predicts that the number for 2020 will increase to approximately 1,660 transactions by the end of the year. This is approximately the same as the figure for 2017. According to this estimation, the total value of the deals will amount to €87.7 billion (2019: €83.6 billion).
In recent times, deals involving German target companies have been becoming increasingly important. The highest figure to date was achieved in the record year of 2019 with a total of 2,158 deals – an increase of 10 percent in comparison to 2018, which itself had surpassed 2017 with an increase of 16 percent.
“We are seeing more and more mega-deals taking place due to restructuring efforts at a number of German groups. At the same time, there is also a trend towards smaller transactions, while mid-market deals have slumped the most due to the pandemic.”
European investors hold a commanding lead in making deals
Investors from Europe and Russia held the top position for M&A deals with German target companies. By September 30, 2020, they had concluded the majority of transactions by closing 1,097 deals with a total volume of €62.3 billion. In particular, the cross-border deal between the financial investors Cinven Partners LLP, Advent International Corporation and RAG-Stiftung with ThyssenKrupp Elevator AG caused quite a stir in February 2020. At €17.2 billion, this deal accounted for approximately 28 percent of the total volume of transactions with German companies.
North America was in a distant second place with 91 deals and a total volume of €2.4 billion. Investors from the Asia-Pacific region were in third place and, according to PwC's analysis, concluded 37 deals with a total value of approximately €1 billion.
The investors that are active on the German transactions market are almost exclusively from industrialized nations. By the third quarter of 2020, their share had risen slightly again to approximately 98 percent. Investors from developing nations and emerging economies therefore recorded their lowest percentage since 2016, when their share stood at 4.7 percent.
New record for private equity investments
Private equity (PE) firms have continued to invest substantially in German companies, as demonstrated by another result from the PwC analysis. Between January and the end of September 2020, they had participated in 406 transactions (all of 2019: 557 transactions). According to PwC's data, this reflects a long-term trend. The share of all deals that is attributable to private equity investors has risen from 20 percent in 2016 to a new record high of 33 percent as of the analysis reference date of September 30, 2020. PwC anticipates that PE investments in German companies will reach at least the same level as the prior year by the end of 2020.
In the recent past, it has primarily been small and medium-sized transactions – with deal volumes of less than €50 million or, respectively, between €50 million and €250 million – that have proved attractive to PE investors. Between the start of 2016 and the end of September 2020, such PE transactions accounted on average for approximately 93 percent of all deals with known transaction volumes. During the same period, the largest decrease of 55 percent was experienced by large deals with volumes of between €250 million and €1 billion.
“While the industrial sector exhibited significantly less enthusiasm about acquisitions, PE firms once again invested more – a long-term trend.”
Technology companies remain highly attractive to investors
As was previously the case, German target companies from the technology and industrial production sectors remain highly attractive to investors. It was in these sectors that investors were most frequently active between January and September 2020 with a total of 392 and 282 transactions respectively. While these two sectors still accounted for just under half of all transactions (47 percent) in 2016, their share has risen continuously and stood at 55 percent of all transactions by the end of September 2020. While less transactions have taken place overall due to the Coronavirus pandemic, the technology sector nevertheless recorded an increase of 4 percent by the end of the third quarter of 2020 compared to the same period in the prior year.
“The comparatively strong growth in investments in the technology sector of late is primarily attributable to increased demand for digital business models.”
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