Frankfurt/Main - The recent positive mood among players in the German transaction market has deteriorated. The latest survey of the M&A panel revealed that concerns about the economic situation are generating uncertainty in corporate M&A departments and among leading investment bankers and M&A advisors. Both groups are polled regularly by CMS Hasche Sigle and "FINANCE" magazine to provide anonymous assessments of the market for the survey.
Financing environment still supportive
The survey indicates that the funding environment for M&A deals has seldom been better: for the second time in a row, company managers awarded a new top mark for access to acquisition financing; investment bankers and M&A advisors see the financing environment as very supportive not just for strategic buyers, but also for private equity investors. In the latter case, their assessment surpasses the existing record. As a result, hardly any transactions currently fail due to financing, i.e. the financing environment scored quite low among the respondents as a possible reason for failure of a transaction. In contrast, the uncertain macroeconomic situation is coming much more to the fore - company representatives rank this "deal breaker" 39% higher and investment bankers 33% higher than in June. "M&A projects are nonetheless still getting off the ground," said Dr Thomas Meyding, partner at CMS Hasche Sigle and head of the CMS Corporate Group. "Private equity investors are playing a more prominent role again as potential buyers."
Looking ahead to the coming months, companies, banks and consulting firms all agree that M&A activity is unlikely to get any easier. There was a 20% fall in the number of respondents in both groups agreeing that the M&A environment will improve in the coming months, compared to the June survey. Any deterioration in the economic situation could affect private equity investors in particular. Unlike companies, they cannot resort to their own cash reserves for funding instead of bank loans. Accordingly, respondents increasingly take the view that strategic investors are at an advantage when competing with private equity firms for attractive takeover targets. Given the well-filled coffers of strategic investors, it will be crucial for the competitiveness of private equity investors whether a slow-down in economic activity is reflected in the availability and conditions of buy-out financing, commented CMS partner Dr Oliver Wolfgramm. "The trend in the past two and a half years tends to suggest that this will not be the case."
Two-way split in the advisory market
The M&A panel's responses are based on information about mandates that have already been awarded so the outlook is unaffected by the recent period of economic weakness. The indications are that M&A advisors can be divided into two groups. Those handling relatively large transactions are being kept very busy and expect their workload to remain high in the coming months, while the upswing in recent months has largely bypassed advisors dealing with small-cap transactions. Although they have now fallen behind their previous forecast in terms of workload, they are optimistic again in their latest predictions.
Compliance becoming increasingly important
The focused survey of corporate M&A managers revealed this time that the importance of compliance has increased recently with regard to transactions and due diligence. Almost half of the respondents see strong growth here over the past five years, while one third consider growth to have been slight. When making acquisitions, the ability to gain protection through compliance guarantees against certain risks, such as bribery or market agreements and price fixing, is important or very important for about 75% of the respondents. "Compliance risks in M&A transactions should never be underestimated. It should also be borne in mind that if stakes of 50% or more are acquired or if there is joint control, for example, antitrust violations
may not only result in fines for the target company itself, but can also lead to serious liability risks for the acquiring company," said Dr Oliver Wolfgramm. The respondents gave widely different assessments of the various tools intended to help minimise the compliance risks of a target company during post-merger integration. While more than 40% assess the tools as "good", an almost equally large group regards the existing tools as having "scope for improvement". Some 60% of respondents view differing compliance management systems operated by buyers and target companies as a risk. "The issue of compliance is also of great importance when preparing for a sale. Vendors are beginning to realise that an 'ostrich policy' with regard to compliance risks could jeopardise the success of the transaction in the crucial phase," explains Dr Thomas Meyding. "For this reason, compliance structures are increasingly being put under the spotlight in the pre-sale phase with the aim of identifying any weak points."