DACH dealmaking powers ahead in 2021

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White & Case LLPTraditionally a powerhouse of European M&A, the DACH region—D for Germany, A for Austria and CH for Switzerland—did not disappoint in the first three quarters of the year.

A total of 1,113 announced deals valued at US$167.1 billion in the first three quarters alone has already overtaken 2020’s annual value of US$147.56 billion, with three months of dealmaking left in the pipeline. Deal volume, meanwhile, registered a significant 31% increase year-on-year.

M&A activity by value 2006 – 2021 [YTD]
Target locations: Germany, Austria and Switzerland Bidder location: Global Sectors: All Sectors

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Total volume for the first three quarters is the highest of any Q1-Q3 period on Mergermarket record (since 2006), while aggregate value for the same period is the highest since 2008.

German dealmaking soars

Germany, the region’s largest economy, saw the biggest year on year growth in M&A value, with a total of US$135 billion-worth of deals already overtaking all annual figures on record. A deal volume of 844, meanwhile, increased by 29.5% year-on-year.

Reflecting the country’s dominance within the region, German assets attracted seven of the top ten deals of the year so far. The highest valued of these deals—and also within the region overall—was German property group Vonovia’s revised takeover for rival Deutsche Wohnen, valued at US$29.4 billion. Following the deal, completed in October, the combined company will own 500,000 flats across Germany as well as property in Sweden and Austria, generating annual cost savings of around €105 million.

The industrials and chemicals sector saw the most activity across DACH, in terms of both value and volume, with a total of 295 deals valued at US$52.6 billion changing hands. The highest-valued deal targeting the sector was US semiconductor equipment maker MKS Instrument’s US$6.6 billion takeover of specialty chemicals group Atotech, in a move to expand its chip making capabilities. The tech sector was active as well, with London-based Colt Technology Services’ carve-out and subsequent sale of 12 datacenters across its Europe portfolio, including Hamburg, to AtlasEdge.

Nor was the Vonovia/Deutsche Wohnen deal the only significant one in real estate. In June, German commercial real estate company Summit Group announced the sale of a major part of its German commercial real estate portfolio to Tristan Capital Partners for an initial purchase price of US$1.2 billion. The target companies hold a total of 69 properties, including office properties in the top seven cities in Germany.

Luxembourg-based real estate investment manager Corestate Capital Holding acquired Aggregate Financial Services, a leading debt-financing platform and securities trading bank. The transaction expands Corestate's leading position in the real estate development financing market as well as the wider real estate sector.

US buyers propel PE activity

Interest from overseas investors has fueled dealmaking during the year so far. Crossborder M&A accounted for US$120.7 billion of deal activity in the first three-quarters of the year, a 54% rise on same period the previous year. Volume rose from 393 to 606 deals over the same period.

US buyers were particularly active—a total of US$72.1 billion-worth of deals almost doubled 2020’s annual total of US$36.4 billion. US PE houses are increasingly targeting the region—as seen in US investment firm Starwood Capital Group’s purchase of a 72% stake in Austrian real estate firm CA Immobilien Anlagen, valued at US$5.3 billion.

Another significant buyout carried out in H1 was L Catterton’s US$4.6 billion acquisition of an 85% stake in German family-owned shoemaker Birkenstock. The US PE firm, backed by luxury French fashion house LVMH, reportedly fought off competition from rival CVC Capital Partners to secure the deal.

Such deals pushed regional buyout activity to overtake all annual totals on record, with a total of 289 transactions changing hands in the first three quarters. German assets were particularly sought after—a total of 91 deals announced in the third quarter alone climbed to the highest quarterly volume on record.

SPACs in DACH

The growth of SPACs has been a standout trend of 2021. While this started out as a US-focused phenomenon, their influence quickly spread to other regions as US-listed SPACs continued their hunt for high-growth assets and expansion into new geographies. The largest of these deals to take place in the DACH region during Q1-Q3 was Montemedes Acquisition Corp’s merger with Swiss biopharma company Roivant, valued at US$6.3 billion.

The deal includes a US$200 million PIPE financing from investors including Fidelity Management & Research Company, Eventide Asset Management, Suvretta Capital, RTW Investments, Viking Global Investors, and SB Management, a subsidiary of SoftBank.

The German tech sector also attracted SPAC interest in the first half of 2021. US-listed SPAC Yucaipa Acquisition Corp’s announced a merger with online sporting goods retailer SIGNA Sports, in a deal valued at US$3 billion.

The SPAC structure is well suited to companies developing early-stage technologies, which offer potentially high rewards as well as higher risk, as displayed in US-listed blank check firm Qell Acquisition Corp’s US$2.4 billion merger with air-taxi startup Lilium. The deal reflects the growing interest in electric vertical take-off and landing aircraft (eVTOL) startups among SPACs, coming after the merger of Joby Aero with Reinvent Technology Partners and Archer Aviation’s combination with Atlas Crest Investment Corp.

Outlook

The influx of interest from international investors—particularly US buyers—seen in the first three quarters of the year is a positive sign for regional M&A as dealmakers enter the final quarter. Activity in high-growth sectors such as real estate, telco, pharma and industrials will continue to generate interest both home and abroad. The interest shown by US-listed SPACs is testament to the high-growth potential that the region continues to offer to investors.

As the economies continue to strengthen within the region, and dealmaker confidence steadily returns, there is every reason to expect a solid dealmaking performance in the final quarter of the year, and into 2022.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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