North American companies in particular were already interested in German start-ups in 2021.
(Photo: DigitalVision/Getty Images)
Frankfurt. Innovative companies from Germany are right at the top of the shopping lists of international corporations and venture capitalists. The number of mergers and acquisitions (M&A) involving German start-ups rose by 90 percent to 171 last year compared to 2020, shows a new analysis by management consultancy EY (Ernst & Young). More than two thirds of the transactions came from foreign investors.
“The interest in German start-ups is huge – especially abroad,” confirms EY partner Thomas Prüver. “And it is primarily foreign strategic investors, i.e. companies that buy young German companies in order to expand their own product portfolio.”
Prüver sees the main reason for the current boom in mergers and acquisitions in the high level of liquid funds that the companies hold due to their recent good business development. “Favorable conditions for acquisition financing and the ongoing pressure to innovate and digitize should further boost M&A activities,” says the expert – despite the effects of the Ukraine war.
With regard to M&A activities, the war is creating uncertainty on the global financial markets. This could also have an indirect effect on the takeover of young companies, although the vast majority of start-up investors do not come from the regions affected by the crisis.
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Lars Meyer, M&A partner at the law firm Freshfields, makes a similar statement. “The tech environment is not as badly affected as, for example, resource-intensive companies, although some sales processes will certainly be slowed down or even stopped here,” he says.
How things will continue in the short to medium term depends heavily on further geopolitical and economic developments. “We see a lot of M&A activity in the areas of software and fintech, but there are also many attractive destinations in Germany in a number of other tech sectors from the point of view of those interested in the US,” adds Meyer.
The biggest deals of 2021
North American groups in particular were already interested in German start-ups in 2021: EY counted a total of 52 takeovers of young German companies by US companies – 38 more than in the previous year. Companies from other European countries bought 49 German start-ups, while Asian companies were only involved in three deals.
Germany has gained a good reputation as a start-up location and has also made the ecosystem much more visible, says Prüver. This increases the chances of young entrepreneurs aOn a successful sale: “Over the past year, the exit opportunities have improved massively – be it through an IPO or a sale to a strategic investor or financial investor. Fresh money flowed into the German start-up ecosystem again, which can now be invested.”
By far the two largest acquisitions of the past year: the acquisition of the Berlin-based software provider Signavio by SAP and the purchase of the analytics platform Adjust by the listed US marketing company Applovin, each for an estimated $1.2 billion.
The companies Innosabi and Egoditor, which are active in the software and analytics segment, were also taken over. “At home and abroad, German tech expertise is particularly in demand. The digital transformation of the economy makes young technology companies highly sought-after transaction targets,” says Prüver.
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The recent very high valuations could come under pressure from the aftermath of the war – which, however, would additionally fuel M&A activity because the takeovers would then be cheaper. “In the course of this crisis, we are seeing a devaluation movement on almost all major stock exchanges,” explains Prüver. If the current phase lasts longer, “this will probably also have an impact on financing rounds for start-ups, since the previous valuation levels will be questioned against the background of the general market situation and adjusted if necessary”.
According to investment bankers, IPOs as an exit option will hardly be an option in the coming weeks. “In view of the acute turmoil, the market for IPOs is largely closed for the time being,” says Armin von Falkenhayn, Head of Germany at Bank of America. This means that sales to financial investors or strategists will come more into focus. However, von Falkenhayn adds: “But that doesn’t mean that you shouldn’t prepare for the next window now.”
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