Few M&A deals in the summer – hope for more momentum in the winter

Frankfurt Companies and their advisors say they are negotiating more about possible mergers and acquisitions (M&A). However, this has not yet been reflected in a revival of the market. On the contrary: According to data provider Refinitiv, the deal volume fell to $13 billion in the almost completed third quarter from $63 billion the year before. Since the beginning of the year, transactions have been made for 80 billion, a quarter less than in the same period last year.

“It’s fair to say that 2023 has been more of a buyer’s market so far. Many sellers continue to exercise restraint as the valuation levels of the boom year 2021 have not yet been reached again,” says Sebastian Bladt, who is responsible for JP Morgan’s German M&A business. However, there is hope for a comeback. A lot of dialogues are being held and many mandates are being advertised.

The current lull is also reflected in the sizes of the deals. In the first half of the year, the sale of the heating manufacturer Viessmann to US rival Carrier Global topped the list of transactions with $13 billion. In the period from July to September, the two largest deals did not even reach $3 billion.

In August, the Spanish infrastructure fund Asterion acquired the hard coal-fired power company Steag for $2.8 billion. Last week, Hamburg decided to sell a 49 percent stake in port operator HHLA to the world’s largest shipping company MSC. HHLA was also valued at around $2.8 billion including debt.

Both deals show that at best infrastructure investments are in vogue. According to experts, numerous mergers and acquisitions can be expected in the sector in the coming months. And actually more would be possible if the general conditions were more favorable.

“A global race for capital to finance the energy transition has begun,” says Roman Waleczek, who is responsible for the German energy sector business at Morgan Stanley. “However, Germany is still in the starting blocks, for example because of low returns for electricity and gas networks compared to other countries.”

A possible transaction that is already being discussed publicly but for which an agreement is still pending is not included in the quarterly statistics: the purchase of the chemical company Covestro by the oil company Adnoc from Abu Dhabi. Covestro management recently agreed to talks, but the prize poker has only just begun.


The deal is unlikely to be the only one of its kind globally. “The Gulf states are diversifying – they are establishing new sources of income besides oil. They invest billions in new businesses. “But majority takeovers will remain the exception,” said Nathalie Daghles, co-head of M&A business at the law firm Noerr.

According to financial circles, hedge funds bought into Covestro in order to earn money from the transaction. However, they shouldn’t be viewed as a deal hinderer, says Cai Berg from the investment bank Parkview Partners. Hedge funds are now a very relevant group of investors when it comes to public takeovers. “That means they want the takeover to be successful and are committed to it, as long as you understand their return requirements.”


Even more than hedge funds, private equity funds traditionally shape events on the M&A market. “The still enormous amount of dry powder from private equity funds as well as the general need for transformation, which affects virtually all industries, ensures relatively lively transaction business, even with more expensive financing costs,” says Stephanie Hundertmark, partner at the law firm Freshfields.

According to experts, the fact that their share in the deal activity is not much larger is largely due to the interest rates. Because as long as their future development is unclear, banks are holding back from granting the high-interest debt capital that financial investors need to finance deals. Complete financing with equity or debt financing using private credit funds is expensive and unpopular.


Concerns about macroeconomic developments are also dampening the momentum for mergers and acquisitions. “The market for medium-sized M&A deals was quite stable until the summer, but has recently become somewhat quieter due to the uncertain economic development,” says KPMG M&A head Alexander Bischoff.

In addition, the very different price expectations of buyers and sellers continue to prevent many deals. Current owners often still have the valuations of the boom phase that ended in 2021 in mind, while bidders compare today’s prices from rivals, which are much lower.

At least on the latter point, the gap is likely to close by itself over time. According to experts, it usually takes 18 to 24 months after a market correction for buyers and sellers to reconcile their expectations. That would mean a higher number of deals in winter.

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