Foreign financial investors drive German M&A market forward in 2022

PwC Study: M&A Activity of Foreign Investors in Germany

Our expert for questions

Steve Roberts

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

Difficult market environment causes decline in M&A activity

The year 2022 was challenging for all investors in many ways. After a strong first half-year of 2022, M&A activity declined in the second and third quarters. Many deals were postponed until next year due to tightening operating costs, worsening financial conditions, increasing geopolitical and macroeconomic risks, and recession fears.

As a result, the total number of M&A transactions involving foreign investors in 2022 is expected to fall short of the previous year for the first time in the last 5 years – with 1,140 deals compared to 1,286 deals (-11.4 %). Total deal value was only €67.7 billion as of November 15, 2022 and is expected to climb to €76.7 billion at the end of the year, significantly down by 26.8 % from last year's €104.8 billion. The M&A market is expected to recover as soon as macroeconomic pressures ease and financing conditions improve.

The share of private equity deals in all foreign M&A transactions has steadily increased over recent years to a historic high of 49.3 percent in 2022. US and Western European investors lead the league, with investors from the Middle East continuing to increase their share in terms of transaction value over the past year. Most transactions took place in the technology and industrial manufacturing segments. Foreign investments in the German energy sector rose sharply.

These are some of the key findings of our survey “Destination Deutschland: M&A activities of foreign investors in Germany 2022”. The analysis includes all transactions published from January 1, 2018 to November 15, 2022.

“Even in times of macroeconomic uncertainty, Germany remains the focus of foreign investors with its diversified industry, reliable infrastructure and stable social and legal framework.”

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

The study at a glance

Private equity investments’ share on all-time high

The share of private equity deals in all foreign M&A transactions has steadily increased in the recent 5 years, from 37.4 % in 2018 to a projected 49.3 % in 2022. Foreign financial investors – above all from the USA and the UK – are playing an increasingly important role in the German M&A market. The number of transactions with foreign PE investors will fall by almost 3 % by the end of the year – from 578 deals in the previous year to an estimated 562 deals. However, the number of PE transactions will significantly exceed the previous years’ numbers: 313 (2018), 408 (2019) and 392 (2020).

“We are seeing PE investors to be more hesitant than in the past. Due to economic uncertainties, many investments and exits are postponed to next quarter. The dry powder available for new investments is still high, thus we expect the M&A activity to resurge as soon as the economic conditions improve and buy-side and sell-side price expectations converge.”

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

Technology sector remains the focus of foreign investors

By mid-November 2022, the technology sector accounted for 29 % of all transactions (296 deals). Industrial manufacturing with 22.8 % and retail & consumer sector with 16 % follow in second and third place. Whereas the M&A activity in technology, energy and infrastructure sectors increased, the number of deals, especially in real estate, financial services, media & entertainment segments, but also in healthcare, dropped. The energy sector saw a significant increase in foreign investments resulting from the increase of energy prices and the new federal government's efforts to promote energy savings as well as the use of green electricity and reduced dependence on individual energy suppliers. The “Digital Strategy 2025” program and the “Act on the Digitization of the Energy Transition” (GDEW) also had a positive impact on investments in digital and energy-efficient companies.

PE firms demonstrated continuous interest in innovative, energy efficient and digitized businesses, providing opportunities for a profitable growth. Technology deals accounted for 35 % of all foreign PE M&A activity, up from 31 % the year before. The share of PE transactions in the retail & consumer sectors fell to 17 % from 19 % in the previous year and remained unchanged (16 %) in the manufacturing sector.

In contrast, the proportion of technology deals by foreign strategic investors slightly decreased from 24 to 23 %. Strategic buyers used the momentum to improve their competitive position and business resilience in a difficult economic environment. Their M&A activity in the industrial manufacturing sector, mostly suffering from increasing energy prices and supply chain disruptions, increased from 25 % in the previous year to 29 %. Retail & consumer sector maintained its third position in the ranking, with 15 % of total M&A deals (down from 16 %). The shares of transactions with strategic investors in the healthcare sector and energy sector increased slightly to 9 and 7 %, respectively.

US investors top the rankings by deal value and volume

Investors from the USA led the ranking by deal volume and value. As of November 15, 2022, they accounted for 22 percent of all transactions. UK and Dutch investors follow to place second and third by deal volume.

In terms of total deal value, the share of US investors was as high as 54.2 %. The main contributors were the mega-deals carried out by US financial investors, above all the purchase of Deutsche Telekom's tower business by Brookfield Asset Management and the DigitalBridge Group with a value of 10.7 billion euros, the €3.0bn acquisition of the rail logistics specialist VTG by Global Infrastructure Partners coupled with with Abu-Dhabi Investment Authority, and the €3bn Vantage Towers’ deal by Global Infrastructure Partners and PE firm KKR. The UK ranked second by deal number, contributing 11.1 % to the total deal volume. France took second place by deal value. The invested amount, as per disclosed deals, was €4.9bn (7.3 % of the total). A major contributor to the ranking was the acquisition of the healthcare manufacturer Corden Pharma by PE firm Astorg Partners for €3.0bn. Whereas European investors hold back compared to the previous boom year, investors from the Middle East used the momentum to increase their presence in Germany as one of the most developed industrial countries in the world. The third-largest investor by deal value, Qatar, contributed €2.8bn (4.2 %) to the total deal value mostly due to its investment in RWE, a leading German energy utility company. The financial investors were involved in 9 of the top 10 mega deals with foreign participation.

“Investors from the Middle East used the momentum to increase their presence in Germany in terms of both value and volume.”

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

“The year 2022 was challenging for all investors in many ways. We expect the M&A activities in the German market, especially by private equity investors, to pick up as soon as geopolitical and macroeconomic pressures start to dissipate and financing conditions improve.”

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

The methodology

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 and MergerMarket 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 2022, excluding those deals, which have been cancelled or terminated in the meanwhile.

The contents of this publication are intended for the information of our clients. They reflect the authors' state of knowledge at the time of publication. For solutions to relevant problems, please refer to the sources indicated in the publication or contact the named contacts. Opinion pieces reflect the views of the individual authors. Rounding differences may occur in the graphs.

Follow us

Contact us

Steve Roberts

Steve Roberts

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

Tel: +49 69 9585-1950