Stuttgart/Frankfurt – Competition for attractive targets in the M&A market has increased significantly. That is the key finding of this year's second survey of the M&A panel polled by commercial law firm CMS Hasche Sigle and FINANCE magazine, comprising some 70 investment bankers and corporate M&A professionals. Most sectors are seeing stronger M&A activity than at the start of the year.
German companies continue to pursue expansion to achieve strategic objectives such as accelerated growth, broadening of their product portfolio, expansion into new markets and greater market share. Both corporates and investment bankers currently view these factors as being the key deal drivers, rating them higher than at the start of 2011. There is thus a strong appetite for acquisition opportunities. The surveyed companies see themselves firmly on the buyer side.
Worldwide increase in competition
Competition for targets in Germany, Europe and beyond is intensifying. “What we are seeing now are the forerunners of deals that could fill the pipeline in the months ahead,” concludes Dr Thomas Meyding, partner at CMS Hasche Sigle. Corporates see significantly greater competition in the acquisitions market in Germany and Europe than four months ago. There was also a significant increase in the number of respondents making a similar assessment of the competitive situation in relation to non-European targets.
Targets must meet high standards
Buyers are selective when it comes to finding the right target. Transactions now fail much more often than in February due to target companies turning out to be less attractive than initially thought. Corporate representatives rate the importance of this deal breaker higher than in February and see it as more of a problem than investment bankers, who take a more relaxed view.
In contrast, the importance of contract clauses as deal breakers has fallen as far as corporates are concerned. Both banks and corporates now no longer consider negotiations to be unusually protracted. “Ultimately, both these factors tend to indicate a better balance between buyers and sellers. This tendency is confirmed by the 2011 CMS European M&A Study,” says Meyding.
Corporates and investment bankers have contrasting views on private equity (PE) investors. In the opinion of the company representatives surveyed, strategic investors have further increased their advantage over PE investors in the race for attractive takeover targets. For their part, investment bankers seem to be observing exactly the opposite. They regard strategic investors as having lost a good part of their advantage since the start of the year. Dr Oliver Wolfgramm, partner at CMS Hasche Sigle: “This is undoubtedly linked to the growing willingness of banks to finance acquisitions by PE investors again on a larger scale.” He expects that the remaining disadvantages for PE investors currently perceived by investment bankers will fade away by the end of the year.
Upturn across all sectors – apart from the construction industry
Increased M&A activity is currently a feature of almost all business sectors: “With the exception of the construction industry, investment banks see a rise in M&A activities in almost every sector,” says Wolfgramm. The panel findings indicate that the expected wave of consolidation in the field of renewable energy will be a contributing factor towards M&A activity in this sector significantly exceeding that in other industries.
Players becoming more cautious
The significance of the wider economic situation as a deal breaker is now rated higher than in the previous survey. In the same vein, the panelists' expectations in terms of the deal environment have softened. “Optimism has declined,” observes Meyding. “In addition to an uncertain economic situation, negative due diligence findings are now also being given a heavier weighting. Both indicate a more cautious approach.”
Contact at CMS Hasche Sigle:
Dr Thomas Meyding, Head of CMS Corporate/M&A
Dr Oliver Wolfgramm
Contact at FINANCE