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M&A panel 2021/I survey by CMS and FINANCE: M&A professionals overcome coronavirus crisis


Frankfurt/Main – After the coronavirus crisis largely paralysed the M&A market last year, deal flow is now picking up again and has almost reached pre-crisis levels – despite the pandemic being far from over in terms of economic impact and infections. The findings of this year’s first M&A panel survey by international commercial law firm CMS and FINANCE magazine show how senior staff in the M&A departments of German companies plus investment bankers and M&A consultants assess the market.

Chief deal drivers: expansion of the product and technology portfolio

The fact that M&A business can mostly be conducted by digital means is giving M&A professionals confidence. They are actively pursuing deals again and currently see expansion of the product and technology portfolio as the most important deal drivers (with company representatives awarding 7.86 out of 10 points, and M&A consultants and investment bankers 8.07 out of 10 points). Accelerating growth is another pivotal reason for transactions (7.66 and 7.91 points, respectively). Expanding into new markets is also a major motivation behind deals, at 7.14 and 7.1 out of 10 points, respectively, for the two groups. Industry consolidation is likewise a significant factor. Compared to October 2020, this means that the key reasons for deals (new products and regional expansion) have gained in importance.

Favourable financing environment boosts PE investors

Growth-driven deals are particularly in demand at the moment, with a focus on small-scale transactions, although mega-deals are also on the cards. Respondents state that they are in a position to handle large transactions given the current favourable financing situation; agreement of company representatives with this proposition comes in at 7.34 out of 10.

The financing environment looks good, with company representatives rating the availability of acquisition finance at 6.07 out of 10. The previous highest score was 6.20, recorded in October 2017. M&A advisors and investment bankers are also positive about the financing environment for strategic investors and PE investors, awarding scores of 7.72 and 7.86 points, respectively. The private equity score in particular is significantly higher than in October 2020. “We are seeing a lot of activity on the buyer side, from both private equity investors and strategic investors,” said Dr Oliver Wolfgramm, Corporate partner at CMS. “The willingness and ability of strategic investors to make acquisitions currently depends on the challenges and difficulties facing companies due to the coronavirus pandemic.”

Software and IT still the most popular sectors alongside pharmaceuticals and healthcare

When selecting target sectors, M&A professionals continue to focus on safety, as they did at the beginning of the crisis. Software/IT is currently the most attractive sector, ranked even higher than in October 2020 (8.59, where 10 indicates a very high level of activity). Pharmaceuticals and healthcare are in second place with a score of 8.07. The least popular sectors are textiles and clothing (3.71 points), energy and mining (4.03 points) and automotive (4.71 points).

Competitive pressure in the market causing excessive prices

With M&A activity focused on a small number of target sectors, competition for assets is intensifying. Company representatives assess competition for targets in Germany and Europe as high, with a score of 7.45 out of 10 points. That actually exceeds the figure prior to the coronavirus crisis (October 2019: 7.41). A similar trend is emerging at international level. Competition with non-European strategic and private equity investors remains stiff (7.21 out of 10 points).

Similarly, excessive prices are being paid in many sectors. Agreement of company representatives with this statement comes in at 8.4. “Alongside risk allocation, purchase prices are the main indicator of a seller-friendly or buyer-friendly M&A market,” said Dr Tobias Grau, partner at CMS. “In 2020, we saw a coronavirus-related shift towards a buyer-friendly market. That trend may already be over.”

New stumbling block in the M&A market: investment control

Since last year, the tightened provisions of the Foreign Trade and Payments Act (Außenwirtschaftsgesetz) apply to corporate acquisitions. The Act provides for extended notification requirements in M&A transactions, especially in critical industries and when foreign investors are involved. This kind of tightening of regulations is normally regarded as irksome. Nonetheless, 80% of respondents feel that the changes are appropriate – after all, they protect many companies from unwanted takeovers.

Yet the new law means more work for M&A departments, whether when drafting contracts or dealing with the authorities. 62% of respondents expect to see greater effort required in this respect. 41% anticipate doing more work on due diligence. The legislation is also likely to have an impact on the time needed for M&A deals, with more than half of respondents believing that transactions will take longer. There is a similar assessment of the new legal pitfalls accompanying the changes.

“The impact of this tightening of the investment control regime is often underestimated,” warned Wolfgramm. “Particularly noteworthy are prohibitions like those imposed under merger control. Other examples include restrictions – enforceable by criminal penalties – on the disclosure of critical information, for example when carrying out due diligence.”

Business booming for M&A advisors

The order books of the M&A consultants and investment bankers involved in the survey are fuller than they have been for a long time. At 1.41, where -5 represents a strongly below-average workload and +5 is strongly above average, project deal flow is significantly better than expected. The reason given is that many deals that were initially postponed last year due to the crisis are now going ahead. Advisors rate their project deal flow at 2.08 in the mid and large-cap segment, i.e. transactions worth more than EUR 40 million. The figure for the small-cap segment is significantly lower, at 0.88, but is still well above the estimate for future project deal flow of 0.67 given in October 2020.

Looking at these results, it really does seem as if the M&A market has overcome the coronavirus crisis. “2021 has the prospect of becoming a strong M&A year,” concluded Grau. “This is down to a combination of exceptionally good market indicators and the catch-up effect after the initial coronavirus shock.”

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FINANCE M&A Panel Umfrage April 2021 Ergebnisse
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