This week, developments are coming thick and fast. First, the Leverkusen-based pharmaceutical and chemical company Bayer raised its takeover bid for the U.S. seed supplier Monsanto to 127.50 euros per share, in a move to push forward what is so far the largest overseas mega-deal by a German corporation. Then, the real estate company Vonovia announced the acquisition of its Austrian competitor Conwert. The healthcare group Fresenius plans to acquire the Spanish hospital operator Quironsalud, while the conglomerate General Electric is planning to acquire SLM Solutions, a provider of 3D printers. And Volkswagen is taking a stake in the U.S. truck manufacturer Navistar. Five deals totaling around 68.5 billion euros. This has never happened in such a short period of time—and much more is planned.
There’s no longer any talk of the concerns investment bankers had at the start of the year. Following a slump in mergers and acquisitions (M&A) in February, it seemed even to these notorious optimists that the momentum of the record-breaking global M&A year of 2015 was beginning to wane. In Germany alone, the volume had plummeted by three-quarters in January to just over two billion euros.
All that is in the past: Things are back on track. Even a new record in Germany seems possible. In the boom year of 2007, the total reached $304 billion. The transaction volume is now approaching 60 percent of that total, as can be calculated from figures provided by the financial data provider Dealogic.
“As things stand now, we can assume that 2016 will be a record year for the M&A market involving German companies,” predicts Christian Kames, head of Citi’s German investment banking division. In any case, the environment for mergers and acquisitions is in good shape. The German benchmark index, the DAX, has now firmly reestablished itself above the 10,000-point mark, emphasizes Rainer Langel, who heads Macquarie in Germany. Interest rates remain at historically low levels given the flood of liquidity from central banks; in some cases, there are even negative interest rates. “And banks are providing financing on a large scale, since margins on acquisitions are at least still adequate,” the banker emphasizes.
Financial circles report a long pipeline of planned transactions worth billions. This includes the sale of the energy services provider Ista, which the financial services firm CVC Capital purchased from the investment firm Charterhouse for approximately 3.1 billion euros just about three years ago. The market is currently discussing asking prices in the range of 3.5 billion euros. Also in the midst of negotiations is the American private equity firm Blackstone, which is attempting to thwart the IPO plans of the office real estate group Office First at the last minute. Insiders report that the parent company IVG is negotiating with the private-equity firm regarding the sale of a real estate portfolio valued at around 3.25 billion euros. Office First is the core business of the former IVG Immobilien, which filed for bankruptcy three years ago due to a heavy debt burden.
The textile retailer and exporter Schustermann & Borenstein is also up for sale, according to financial sources. The French investment firm Ardian has launched an auction to secure the best possible price. Interested parties are expected to submit bids by mid-September, insiders report. Bankers estimate that the former Axa Private Equity can expect proceeds of around 800 million euros. When Ardian acquired the company, Schustermann & Borenstein had been valued at 300 million euros. Private equity firm Cinven, which plans to sell lighting manufacturer SLV, is hoping for proceeds similar to those of the French private equity firm. Goldman Sachs is reportedly entrusted with the sale in the second half of the year. Five years ago, Cinven acquired the company from HG Capital for around half a billion euros.
Virtually all major private equity firms have also positioned themselves to acquire the Bad Vilbel-based pharmaceutical manufacturer Stada. According to information from industry and financial circles, these include, in addition to CVC, the private equity firms EQT, Permira, Apax, and Blackstone. Advent and BC Partners are also said to be interested. The company is in a dispute with the investor Active Ownership Capital (AOC) over the group’s strategic realignment. The pharmaceutical group has a market capitalization of just over three billion euros. A premium would be added to that. “The average takeover premium is 30 to 35 percent when paid in cash,” calculated Philipp Beck, who is responsible for M&A operations in Germany at UBS.
These five transactions alone total just over twelve billion euros. “September and October in particular could see further major transactions announced, because companies want to have the deals largely financed before the U.S. presidential election and a possible interest rate hike by the U.S. Federal Reserve,” emphasizes Dirk Albersmeier, co-head of M&A for the American bank JPMorgan in Europe. On November 8, it will be decided whether Republican presidential candidate Donald Trump wins or whether Democrat Hillary Clinton comes out on top. In December, the market expects another U.S. interest rate hike.
Foreign interest in German companies also remains unchanged. “Cross-border transactions are currently dominated by Asian and, in particular, Chinese buyers,” says UBS banker Beck. Langel of Macquarie makes it clear that interest from Chinese investors is greater than ever before. To him, it seems “realistic that about a quarter of the total domestic M&A volume will be attributable to China in the coming years.” This year, the acquisition of robotics manufacturer Kuka by Chinese home appliance maker Midea attracted a great deal of attention and sparked heated debate.
However: “Valuations are high; nothing is cheap anymore,” as Citi banker Kames admits. For him, good companies come at a price. The only question is how long the positive sentiment in German boardrooms will keep prices high.
