M&A conditioned by geopolitical and infrastructural transformation
UK companies are currently interesting takeover targets, amongst other things because they maintain access to the UK market after Brexit. But German companies remain attractive for buyers too.
British M&A booms
In the course of its Brexit efforts, the United Kingdom is unmistakably in the spotlight of M&A
activity. The EU and in particular its companies with corresponding trade and supply chains are
challenged with operational as well as bureaucratic scenarios. As long as the exit has not been
completed, there is the possibility for European firms by change of registered address or cross-border
merger to treat the UK as an EU member country and like that still use the EU law.
Since Germany and
the UK are closely linked in economic terms, an exit will have a big impact on competition. Due to
retaining access to the UK market and using the weak pound, M&A activity involving the sale of UK
companies has boomed. For 2019, it is anticipated that buyers‘ demand will notably come from both the US
and Asia with a balanced and long-term approach. Besides the threat of Brexit, Europe’s appeal is fading
with the absence of reforms, low growth rates as well as the new East-West divide.
Germany is particularly interesting for European buyers
German firms are generally favored by foreign buyers in Europe whereby intra-European takeovers in the
small and medium-sized enterprise (SME) setting still play a dominant role. Instead of setting up and
establishing an own business, an acquisition seems to be suitable for European buyers as a quick entry
into the German market.
Turkey being an extended workbench for Europe on the contrary becomes
dramatically less important through the decline in the value of the lira. The economic policy framework
represents a major uncertainty factor by more than three-fourths of all responding companies in the “AHK
World Business Outlook“. For the purposes of this survey, 3.500 German firms and their foreign
subsidiaries were interviewed.
As non-European buyers, especially China and the US showed high
activity in the German M&A market. US President Trump's isolationism irritates in consideration of
the fact that Xi Jinping as General Secretary of the Communist Party of China follows a reverse strategy
that is based on the “Belt and Road Initiative“ (BRI) which was introduced for the first time in 2013
and later on expanded with the “Made in China 2025“ strategy in 2015.
“Made in Germany” is still a sign of quality
Beijing clearly prefers BRI investments, that pursue a strategic corporate, logistical and cultural
purpose. However, Germany remains a priority for Chinese acquirers, given its high technological
expertise and the attractiveness of the “Made in Germany” label. Chinese state-owned enterprises (SOE)
have undergone a change in acquisition practices and gained extensive transaction experience in regard to
financing and post-merger integration. It turns out that Chinese companies as managers are putting more
investment in companies, safeguarding jobs as well as supporting market access for SMEs in the world’s
second largest economy. As a result, both sides benefit from these synergies.
M&A deals between
the EU and China should increase in the next few years, particularly as the US becomes more challenging
for Chinese firms and more European firms take advantage of being at one end of the BRI “road”. China‘s
announcement that it will repeal foreign ownership limits on local automotive companies by 2022, should
also enable German companies to execute strategic acquisitions in China.
Germany is the most
important target region for US-Americans regarding the size of the market, central location, strong base
in Europe and the related management system for foreign subsidiaries. The latter aspect is important
because US buyers lack experience in managing associated companies abroad and serving small-scale as
well as foreign markets with a high level of differentiation in customer expectations. All this is
delivered through an acquisition of a German SME, adding to its market presence. Therefore company
takeovers can be seen as an entrance into the European market to globalize business.
Issues for small and medium-sized companies
In addition to all geopolitical and infrastructural transformations, SMEs often face ambiguities on how
to approach a professional business sale. Dealing with an absence of intra-family successors, a key role
is played by identifying the best buyer – who can be a strategic buyer, financial sponsor, family office
or private investor.
The selection between potential buyers and partnerships is huge, because
interest rates remain at the low level and the attractiveness of family-owned businesses is high. Thus,
a comparison of interested parties and their offers to purchase is only within a structured sales
process available and above all provides the necessary overview to constructive sales talks. For
instance, in regard to an international expansion strategy, the consideration of a partnership with
foreign companies or financial sponsors can offer clear benefits.
However SMEs frequently lack the
ability to capture strategic fits and process flawless in stages. M&A tools and best practices are
diverse and require a professional preparation as well as a coordinated action. According to poor
communication, expertise or preparation by companies themselves, it is all the more annoying when
transactions fail.
The so called due diligence, in which the seller discloses confidential
information, can also be seen as a deal breaker. One problem that is often encountered is company owners
want to process the business sale not with a professional M&A advisor, but with their lawyer and tax
advisor. Thereby the process is losing serious momentum because from experience, it is moving to the
sideline. Furthermore, it is proven that sellers receive significantly higher acquisition premiums when
they retain an M&A advisor. As one of the leading advisory firms for mergers & acquisitions in
the German-speaking area, Promecon has been delivering sustainable value to small and mid caps for many
years.
Link to the article:
https://www.maschinenmarkt.vogel.de/britischer-markt-fuer-mergers-acquisitions-boomt-a-803498/