“The drop in German M&A activity for 2008, as a consequence of the sub-prime crisis, will be smaller than predicted. After a record M&A year in 2007, by both deal size and numbers, the mega-mergers will be rare, but mid-market transactions will increase.
Last year saw overall growth in deal volumes of more than 20%, whereas 2008 will return to 2006 levels. The German mid-cap M&A market will remain an attractive playing field, with reduced deal volumes, but an increased number of transactions. Investment banks will start focusing on smaller deal sizes.
With Germany being the lead market in Continental Europe, a similar development is expected for other European countries. Sound European corporate balance sheets will lead to strong investment activity from corporates in Germany as well as from the Nordic and Eastern European regions, where corporates have shown an increased appetite for cross-border investments into Germany. Further demand is expected for German targets from Asia and the Arab world.
This corporate M&A activity coincides with a significant shift from financial to strategic investors after the credit crunch in the second half of 2007. Financial sponsors will take advantage of this shift through exits to strategic investors, which will often be able to pay a higher price than European financial sponsors,who had previously had access to aggressive debt leverage multiples in the buoyant buyout market.
Sovereign funds are also likely to take a lead in larger buyouts.
This year is likely to see major consolidation and M&A activity in the German aerospace, financial services and media industries. Despite the credit crunch, private equity will continue to realise selected investments and exits will be dominated by sales to strategic investors.
With these different developments, the outlook for 2008 remains positive.”
Andreas Pabsch, partner,
MCF Corporate Finance, Hamburg" >