Corporate disposals to boost German dealflow

Amid a renewed appetite for M&A, competition for quality assets is growing more intense – but readily available financing now puts buyout firms and trade bidders on a similar playing field, says law firm CMS Hasche Sigle.

German buyout firms could soon benefit from a sturdier pipeline of deals, a recent study found. 

According to law firm CMS Hasche Sigle, which polled executives at German corporations and advisers on their perception of the market, improving economic prospects could soon trigger a thaw of the M&A market in the country. 

Corporates' appetite for acquisitions is rising, the report found: 32 percent of those surveyed said they had an above average number of deals in the pipeline, while 27 percent of bankers and advisers agreed to the same.   

But improving confidence should also lead to more assets being put up for sale, said Oliver Wolfgramm, a partner at CMS HS, during an interview with Private Equity International.Companies will increasingly come to view the more open M&A market as an opportunity to sell non-core assets, creating opportunities for private equity deals, he explained. 

The up-scaling and professionalisation of the Mittelstand, the country’s SME manufacturing core, was also seen as a source of potential deals. A number of successful entrepreneurs are now looking to cash in the business they founded – although some of them, Wolfgramm said, remained reluctant to sell to institutional buyers in the wake of the financial crisis. 

Interested private equity parties, the study implied, would often have to compete with cash-rich, savvier trade buyers. “Growing professionalism also among SMEs is evident from the fact that more and more firms have their own high-calibre M&A departments,” said Thomas Meyding, a partner at CMS HS. 

But more readily available financing, and better terms offered to institutional borrowers, would now allow them to better compete during auction processes, Wolfgramm argued. “Securing financing at adequate conditions was always an issue during the financial crisis. But this is no longer the case, and when competing for deals German private equity firms and corporates are now on the same level again.”

That was evidenced by stronger buyout activity in the second quarter, he said, with the €3.3 billion acquisition of Springer Science and Business Media by BC Partners the largest announced deal in that period.

“Corporates are pretty confident with regards to competition with private equity, because they feel they have a lot of cash. But that’s a pretty subjective view. When you look at more objective criteria, such as the availability and conditions of financing, it’s not obvious that they retain a distinct advantage,” Wolgramm added.

PEI recently flew to Frankfurt to conduct an in-depth roundtable with German private equity insiders – magazine subscribers may click here to read the full story.