Stuttgart/Frankfurt am Main – Investment bankers and M&A strategists are switching back to crisis mode after a short-lived revival in the spring. Companies currently no longer view M&A primarily as a driver of growth, using it instead to increase their resilience. That is the key finding of the latest survey of the M&A panel organised by CMS Hasche Sigle and FINANCE, which covers M&A heads of large companies and leading investment bankers.
The M&A market's woes are clearly attributable to the euro crisis. When asked about the importance of specific deal breakers, survey participants ranked general economic uncertainty right at the top. The panellists also regard the overall deal environment more pessimistically than before. No improvement is expected. There is nevertheless still widespread agreement with the statement that the respondent's company would currently be able to finance a relatively large acquisition.
Both groups of respondents state that deals are now driven primarily by a desire to expand the product and technology portfolio. According to Dr Thomas Meyding, partner at CMS Hasche Sigle: "As a result, M&A activity in Germany as a high-tech location is set to be higher than in most other parts of Europe. This assessment is also supported by the fact that foreign companies are openly expressing their interest in German technology firms."
M&A bosses nonetheless see transactions facing growing difficulties. Negative due diligence findings are increasingly becoming deal breakers in their view. "Comprehensive due diligence is becoming more important as a result," says Dr Oliver Wolfgramm, partner at CMS Hasche Sigle. "The increasing uncertainty with regard to overall economic developments is reflected in potential investors becoming ever more risk-aware. Decisions about whether to go ahead with an acquisition are considered extremely carefully."
On average, company representatives agree more often than in the spring with the statement that excessive purchase prices are currently being paid in many sectors. "One reason for this is doubtless that many German companies, such as those in the engineering and automotive industries, continue to defy the crisis in impressive style," says Wolfgramm. These companies also provide evidence that the Lehman crisis has been overcome. "Consequently, sellers see good opportunities to sell these firms at high prices," notes Wolfgramm. "Having said that, there are increasing signs that this window could close."
The M&A chiefs surveyed are also increasingly seeing a gulf between valuations by buyers and sellers. In order to close transactions, buyers and sellers are making more and more use of contract clauses under which the purchase price agreed on signing is subsequently adjusted. Meyding notes that purchase price adjustments have returned to 2007 levels. "This is in line with the trend in the US, where four out of five corporate transactions analysed recently by ABA included this type of purchase price adjustment clause."
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