Frankfurt Buyers from abroad have long recognized the potential of young German entrepreneurs from the technology sector. They therefore keep a targeted lookout for candidates and reach out to attractive companies.
According to a study by the management consultancy EY (Ernst & Young) on the M&A market, a total of 203 Start-ups taken over in Germany – more than ever before. The year before, the number of acquisitions was 171. Two out of three deals came from foreign investors.
Will the collapse of California’s Silicon Valley Bank (SVB) in the US change this trend? It is the biggest collapse of a bank since the 2008 financial crisis. Because the institute specialized in financing technology companies, start-up companies are also under pressure.
It is clear that the rapid and sharp rise in interest rates could lead to new risks and instabilities on the financial markets, admits Thomas Prüver, a partner at EY. “The start-ups with their high financing requirements could possibly be more affected by these challenges than other companies,” he admits. In the short term, however, he does not see any effects on the start-up M&A market, according to the expert.
According to experts, there are two reasons for this. On the one hand, declining valuations allow takeovers at lower prices, on the other hand, established groups have high reserves to make purchases.
In the M&A market for start-ups in 2022, for the first time, buyers from other European countries played a larger role with 78 (previous year: 51) transactions than US companies, which bought a total of 53 (previous year: 59) German start-ups or invested in them. The remaining seven international M&A transactions in 2022 were attributable to companies from Asia, with the share increasing from three to five percent.
A total of 65 deals involving young German companies also came from Germany, mostly from companies in Berlin and Munich.
One of the most important transactions was the takeover of the delivery service Gorillas by the Turkish competitor Getir. The Berlin fleet management start-up Vimcar (Software & Analytics) was bought by Battery Ventures. Road traffic technology specialist Yunex Traffic went to Italian company Atlantia and insurtech Simplesurance to Allianz X, a unit of Allianz for Digital Investments.
The example of 3D Systems shows that US companies are still very interested in the German market. The US group acquired Kumovis. The German start-up has made a name for itself with space-capable 3D printing technology and software. 3D Systems has taken over another German start-up, namely dp polar GmbH. This young company has specialized in 3D printing processes in connection with industrial mass production.
Lots of stressors
2022 was a challenging year for start-up companies. The interest rate turnaround by the central banks, the economic slowdown and the expiry of corona aid led to the company valuations being corrected downwards. Profitability moved more into the foreground, not so much growth.
In addition, there was not a single IPO by a German start-up in 2022. In 2021 there were four IPOs and five mergers with stock exchange shells (Spacs).
There While IPOs are currently not an exit option for investors, M&A transactions are becoming more of a focus, says EY partner Prüver. In addition, some young companies that had problems obtaining fresh capital had become takeover candidates.
Foreign corporations buy start-ups in order to benefit from the dynamism of the young companies.
(Photo: AP)
The number of takeovers therefore rose sharply again compared to the record year 2021. This is a clear sign of “how competitive local start-ups and their ideas and business models are in international comparison,” said Prüver. At the same time, this trend is also a warning sign for politicians, because a lot of innovation potential is flowing out of Germany as a result of the takeovers.
Interest in companies that develop and offer digital solutions was particularly high: 66 (33 percent) of the more than 200 M&A transactions were in the area of software and analytics.
This collective term often hides solutions from the field of artificial intelligence (AI), which US investors in particular are looking for. 30 transactions (15 percent) were completed in the area of e-commerce.
Another focus of investors is on sustainability and in particular on climate technologies, explains Julian Riedlbauer, partner at the consulting and investment company GP Bullhound. Last year, more than 50 billion US dollars were invested in climate tech start-ups worldwide.
A quarter of every venture dollar invested worldwide now flows into climate technologies. Numerous VC funds have specialized in the topic of climate. There is also a lot of potential in the Defense segment. Last year, NATO announced a €1 billion fund to invest in early-stage defense tech companies. However, according to the experts, it remains to be seen how the SVB collapse will affect all market segments.
“Profiting from the dynamism of young companies, their innovative business ideas and alternative ways of working and processes – these are certainly the main reasons for established companies when they buy start-ups,” emphasizes E&Y expert Prüver. Conversely, of course, the young companies also benefited from the cooperation with established companies, their market knowledge and financial strength.
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