von Burc Hesse, Dr. Tobias Larisch

The German M&A/PE market was off to a good start in 2020, but then the COVID-19 pandemic hit, unsettling the market and leaving many market participants to wonder whether we were going to face a situation comparable to the financial crisis in 2007, when there was a shutdown in the capital markets and M&A dropped precipitously.

When business went largely virtual in 2020, so did M&A activities. While there was a significant slowdown in the second and third quarters in M&A/PE activities, no drop-off happened comparable to the one in 2007. According to Refinitiv’s Global Mergers & Acquisitions Report, in terms of deal value, there has even been an increase in announced M&A transactions with German involvement of 18% compared to 2019 (while the number of transactions was indeed lower than in 2019 due to the slowdown in the second and third quarters). The German M&A/PE market has hence proved to be resilient despite the challenges resulting from the pandemic, and private equity’s share in German M&A deals even increased compared to 2019.

In terms of deal volume, three transactions involving German market participants stood out in 2020:

    • Thyssen-Krupp’s sale of its elevator business to a consortium consisting of Advent and Cinven, amongst others (deal value €17.2 billion). This sale marks the largest buy-out transaction in German M&A history, and we take some pride in having represented certain bidders in the auction process, certain financing banks, as well as the bank consortium in the parallel IPO track.
    • Siemens Healthineers’ agreement with Varian Medical Systems, pursuant to which Siemens Healthineers shall acquire all shares of Varian (deal value approx. €14 billion). We are assisting Siemens Healthineers with this landmark transaction, the largest M&A transaction in Siemens’ corporate history to date. Our US team also successfully assisted Siemens Healthineers in securing CFIUS clearance.
    • Siemens’ spin-off, and subsequent listing, of its energy business unit to create Siemens Energy (deal value approx. €8.8 billion). We have also had the opportunity to advise on this transformative transaction, representing the banks throughout the entire process.

Latham is optimistic that 2021 will be another good, if not “big”, year for the German M&A/PE market. This outlook is supported by the removal of many external uncertainties, with a Brexit deal now confirmed, the Biden Administration transitioning into office, and the COVID-19 vaccination process under way in many countries. Private equity investors continue to have significant “dry powder” to invest. Debt is cheap, and corporate balance sheets are healthy. The stock market has rebounded. These circumstances and feedback from investment banks with regard to recent and ongoing pitches for 2021 M&A transactions lead to the perception that the overall deal pipeline is strong, with no signs of an expected slowdown anytime soon.

Latham expects that target companies from the technology as well as the healthcare and life sciences sectors will be of particular interest to investors (as the sectors are to a large extent unaffected or even positively affected by pandemic-related disruption). Moreover, “green” business models that are ESG-compliant will continue to push forward the M&A market. [Click here for more]

Latham assumes that corporates (in particular those in the industrial and chemical sectors) will continue to focus on their core activities, with further spin-off and carve-out transactions fueling deal activities. Further momentum should be created around take-privates, acquisition of minority stakes in listed companies (including by way of PIPEs), and particularly — given the pandemic and impact of lockdowns on a number of business models — distressed M&A. [Click here for more]

A certain renewed attention can be expected with regard to transactions involving SPACs (or special purpose acquisition companies). Such “blank check” shell corporations designed to make investments by specific listed companies exist in the M&A market as an alternative to the traditional IPO. In 2020, there was a significant increase in the number of SPAC transactions in the US. Looking forward, a number of SPAC transactions are expected and partly already announced for 2021 in Europe. [Click here for more]