Foreign PE investors scale up their stake in German companies

PwC survey: M&A activities of foreign investors in 2023

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Steve Roberts
Partner, EMEA Private Equity Leader, PwC Germany
Tel: +49 69 9585-1950

Total deal value reaches five year  low with signs of green shoots

Geopolitical tensions and economic uncertainty continue to weigh on investment confidence and the German M&A market in 2023. As a result, the total value of foreign M&A investments in Germany has fallen further below the level of previous years. At an estimated €56bn for the full year, total deal value is expected to be significantly lower than in previous years (2021: €112bn, 2022: €73bn). 

Due to tighter financing conditions and increased business risks, strategic investors have seemingly  postponed some of their investments. Foreign private equity investors, on the other hand, are returning to the market, but invested by far less than in the previous years. The share of PE backed transactions in the market reached 43.6%.. More than half of all transactions targeted the industrial manufacturing and technology segments. 

Strategic investors mainly invested in the industrial manufacturing sector, whereas PE firms favored innovative, agile and scalable technology businesses​. European investors clearly led the ranks in terms of the number of deals, while North American investors were ahead in terms of the total value of transactions. Non-EU investors including US, UK and Swiss investors account for the biggest portion of total M&A volume by far.

These are some of the key findings of the PwC report Destination Deutschland: M&A activities of foreign investors in 2023. The report includes all transactions announced between 1 January 2019 and 15 November 2023.

“Despite the downfall in overall M&A activity, we still observe that high quality assets are traded at strong prices, reflecting continued foreign investors’ interest in sustainable, agile and innovative businesses.”

Steve Roberts,Partner, EMEA Private Equity Leader, PwC Germany

The survey at a glance

After a strong first  quarter of 2023, deal activity cooled down somewhat in the following two quarters and is likely to increase in the fourth quarter of 2023. We expect a total number of 1,178 transactions for the full year, slightly more than in the prior year (2022: 1,140). However, at €56bn, the projected total deal value is significantly below the prior years’ levels (2021: €112bn; 2022: €73bn).

Private equity investors continue to expand their market share

As a result of continuing reluctance among strategic investors due to higher business risks and tighter financing conditions, the share of PE transactions is expected to reach 43.6% at the year-end.  Furthermore: strategic investors focused on the industrial manufacturing sector, which was particularly hit by the consequences of geopolitical tensions, whereas PE firms invested mainly in agile technology companies. PE investors have proven once again to be agile and being able to adapt their strategies more easily to changing market conditions.

Increased number of foreign PE deals in the SME segment

In the last three years, foreign private equity investors have been more active than strategic investors across all deal ranges, and in 2023 have increased their presence in the SME segment. Their share within the small deal segment (less than €50mn) is expected to increase from 112 deals in the previous year to 198 deals at the year-end (20 ppts compared to prior year). At the same time, their share of mega deals decreased from 60% in the previous year to forecasted 48% at the year-end (15 versus 12). This trend towards SME investments is to be  explained by the challenges in financing larger transactions and fundraising difficulties. Marking this trend, the average PE deal value shrinked by nearly a half from €195mn in the previous year to €100mn year-to-date. In addition, many of the large exits, which PE had planned were pulled or postponed, in order to place these deals at a later time, when economic conditions are more favorable.

European investors scale up their M&A deals in Germany

With a total of 706 transactions, European investors account for far more deals than North American investors (201 deals). At a total volume of €22.3bn, Europeans were able to significantly reduce the gap to North Americans (€23.3bn). Investors from the Asia-Pacific region accounted for 110 deals with a total volume of €5bn.

It is striking that Non-EU investors have invested almost three times as much as EU investors over the past three years. Besides US investors, British and Swiss investors played an important role.

“We expect M&A activity to increase again as soon as the economic environment improves and price expectations on the buyer and seller side converge.”

Steve Roberts,Partner, EMEA Private Equity Leader, PwC Germany

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M&A activities of foreign investors in 2023

Technology and industrial manufacturing attract more than half of all transactions 

Foreign strategic buyers further increased their presence in industrial production, from 30% to 32% and decreased the investments in technology and healthcare assets from 22% to 19% and from 9% to 7% respectively as compared to the prior year. Furthermore, they have shown a higher interest in the retail & consumer segment. 

Technology deals accounted for 37% of the overall number of foreign PE transactions year-to-date, slightly down compared to 38% in the previous year. Remarkably, foreign PE firms demonstrated more interest in the industrial production sector, jumping from third place to second place (18% of total PE deals), and reduced their presence in the retail & consumer sector (ranked third), a sector that has mostly suffered from lower consumer confidence, from 19% in the previous year to 15% year-to-date.

“Even in times of macroeconomic and geopolitical uncertainty, Germany with its strong and diversified industrial network, skilled workforce, reliable infrastructure, and stable social and legal framework remains in focus of foreign investors.”

Steve Roberts,Partner, EMEA Private Equity Leader, PwC Germany

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M&A activities of foreign investors in 2023

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This report is an analysis of transaction activity of foreign investors in Germany. The fundamental data used for this analysis has been collected from Refinitiv, Mergermarket and Unquote and includes all announced deals, where the target is headquartered in Germany and the investors are headquartered in a country outside of Germany. 

This analysis includes all mergers, acquisitions and disposals, leveraged buyouts, spin-offs, privatisations and acquisitions of minorities, which have been announced between 1 January 2018 and 15 November 2023, excluding those deals, which have been cancelled or terminated in the meanwhile. 

This publication includes information obtained or derived from a variety of publicly available sources. PwC has not sought to establish the reliability of these sources or verified such information. PwC does not give any representation or warranty of any kind (whether express or implied) as to the accuracy or completeness of this publication. 

The publication is for general guidance only and does not constitute investment or any other advice. Accordingly, it is not intended to form the basis of any investment decisions and does not absolve any third party from conducting its own due diligence in order to verify its contents. Before making any decision or taking any action, you should consult a professional advisor.

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Steve Roberts

Steve Roberts

Leiter Private Equity bei PwC Deutschland und auf EMEA-Ebene, PwC Germany

Tel: +49 69 9585-1950