Private equity investors, who traditionally work heavily with outside capital, currently have hardly any money for company acquisitions.
(Photo: Reuters)
Frankfurt The downturn in the mergers and acquisitions (M&A) market continued in the third quarter of this year. Distortions on the capital market, fears of a recession and rising interest rates have significantly reduced the volume and number of deals in the year to date.
According to data from the business service Refinitiv, only transactions with a total volume of almost 98 billion dollars were announced in Germany in the first nine months, which was 44 percent less than in the same period last year. For the first time since 2017, the mark of 100 billion dollars was not exceeded in the first three quarters. The number of deals fell by 22 percent from January to September.
A major reason for the doldrums was the lack of bank loans to fund the deals. The private equity investors, who traditionally work heavily with outside capital, simply had no money for company acquisitions.
The investment funds are key players in the M&A business. Financing with equity or money from more expensive credit funds would often have made the transactions unprofitable.
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Investment-grade corporations – which continue to be able to raise capital easily – also held back on larger deals in the face of the Ukraine war, energy crisis, inflation and supply chain issues.
The larger transactions announced in the past three months all included projects that had been planned for a long time, such as the EUR 17.5 billion sale of the Telekom subsidiary Deutsche Funkturm, the complete takeover of Siemens Gamesa by Siemens Energy or the purchase of the chemicals business of DSM by Lanxess and the financial investor Advent.
The exception is the state rescue operation for the gas trader Uniper, which is not a classic M&A deal. The doldrums also continued with the IPOs; the announcement of the Porsche transaction is not included in the Refinitiv figures, but the statistics will subsequently be better.
Economically better environment in the USA
Many investment bankers, including Barclays’ Sven Baumann, are expecting a renaissance in the coming months for transatlantic deals. “China has lost its attractiveness. When it comes to acquisitions, German companies are currently primarily looking towards the USA. Although US companies are relatively expensive, they are also attractive, not least because the economic environment there is currently better than in Europe,” explains the bank manager.
Conversely, US companies also sounded out the German market. They benefited from the exchange rate. However, the issue of energy and natural gas acts as a stumbling block. Jan Kupfer, board member for corporate customers at Hypo-Vereinsbank, does not yet see a wave of rescue M&A deals for medium-sized companies. The Economics Ministry has announced energy subsidies, and KfW is ready with special programs. Nevertheless, there could be occasional imbalances and thus corresponding transactions.
Christian Zuleger, partner at the law firm Sidley Austin, believes that financial investors are very active despite the difficult general conditions. This applies above all to transactions between 300 million and one billion euros. “The funds of the private equity houses are getting bigger, the pressure to invest is increasing. Perhaps we will see larger deals involving financial investors as early as autumn,” says Zuleger. Medium-sized companies are now also streamlining their structures. Sales of business units are no longer just an issue for listed conglomerates.
In addition, private equity funds and other financial investors still have record volumes available for M&A activities that have not yet been invested, explains Martin Ulbrich, partner at the Hengeler Mueller law firm. Investors traditionally focus on crisis-proof business models with predictable profits, for example in the healthcare, infrastructure, education, construction and food sectors.
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