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Investors cooling on M&A as driver of growth

Growing concerns about the economy are curbing corporate expansion plans, according to the latest analysis by the Finance M&A panel conducted jointly with CMS Hasche Sigle.

CMS Hasche Sigle polls the heads of the transaction departments at major German companies plus leading investment bankers and M&A consulting firms for their market assessment three times a year.

The key finding is that the “hunger” for deals has declined, while expansion-related deal aspects are in many cases much less important now than in previous surveys.

On average, respondents assessed the availability of acquisition financing over the past 12 months as stable. Investment bankers likewise consider the current financing environment for strategic buyers to be good. This has nonetheless not led to a rise in major transactions. It would appear that in an uncertain investment climate, M&A managers are even keener to preserve their liquidity than in previous months.

"Takeover activity is being held back by the bleak economic outlook and the financial problems still facing some European countries," says Thomas Meyding, partner at CMS Hasche Sigle. "Companies remember 2008 all too well: adequate liquidity played a major role in surviving the fallout of the Lehman collapse."

Looking ahead, there seems little prospect that the M&A situation in Germany will improve any time soon. Bankers remain subdued about the transaction market over the next twelve months, while company representatives are markedly more pessimistic than in the summer. The expectations of corporate M&A bosses are now back down to the levels of autumn 2011, when the downward slide on the DAX hit sentiment hard.

"We had been seeing a German 'M&A mini-boom', especially in the mid-cap sector. This is coming under pressure due to short and medium term concerns about the performance of the global economy," says Oliver Wolfgramm, partner at CMS Hasche Sigle.

Investment bankers also blame the uncertain macro-economic situation for causing M&A transactions to fail. While companies view the importance of this deal breaker as being roughly the same as in June, investment bankers attribute a 14 per cent higher rating to this factor. In fact, their rating of the economic environment as a deal breaker is higher than at any time in the last two years. 

Accordingly, the surveyed investment bankers expect the challenging environment to slow down deal-making in the automotive and machinery/engineering sectors, which have been driving the M&A market of late. Expectations are better for software and chemicals, which are less cyclical sectors.

The Finance Private Equity panel survey, recently published in conjunction with CMS, yielded similar results for the private equity industry.

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