Mergers and Acquisitions Involving German Firms Stabilize at an Extremely Low Level

The number of mergers and acquisitions (M&A) involving German firms continues to decline for the second year in a row. In the second half of 2019, the ZEW-ZEPHYER M&A Index – established in 2005 to measure M&A transactions involving German companies – recorded its lowest levels. In August 2019, the index dropped to 59 points, before showing signs of recovery in the beginning of 2020.

The twelve-month moving average highlights the persistence of the index’s negative trend, which can be traced back to summer 2018. “The decline in M&A activities would have been even more pronounced if there had not been three major takeovers in the past six months,” says Ilona Tsanko, a researcher in ZEW’s “Economics of Innovation and Industrial Dynamics” Department. The ZEW-ZEPHYR M&A Index tracks the monthly number of M&A deals completed in Germany and is calculated by ZEW Mannheim on the basis of the Zephyr database of Bureau van Dijk.

One of the biggest M&A deals in the German energy sector materialized in September 2019. As part of E.ON’s plan to merge with Innogy, a subsidiary originally founded by RWE in 2016, E.ON acquired RWE’s stakes in Innogy for an estimated 37.8 billion euros, creating one of the largest energy suppliers in Europe. The deal – already announced in 2018 – was completed after the approval of the EU competition authorities.

Besides this big merger in the energy sector, the German chemical industry also experienced two of the largest M&A deals in the past six months. Darmstadt-based Merck KGaA acquired Versum Materials Inc., a leading electronic materials company based in the US, for approximately 5.8 billion euros. The deal is the second largest German M&A deal in the last six months and marks another step for Merck in becoming the leading supplier of electronic materials for the semiconductor and display industries.

Another notable deal in the chemical industry was the acquisition of the polyamide division from Belgium-based Solvay by chemicals giant BASF for 1.6 billion euros in February 2020. Through this merger the Ludwigshafen-based company has extended its polyamide competencies with engineering plastics.

How the outbreak of the COVID-19 pandemic will affect the number of transactions still remains uncertain at this stage. “In times of crisis, activities on the M&A market traditionally decline,” says Ilona Tsanko. “The coronavirus crisis has created considerable uncertainty for M&A transactions. This applies not only to the question of whether a purchase or sale is currently appropriate, but also to the effects of the coronavirus on ongoing transactions. Will the pandemic create such a strong feeling of insecurity that negotiations will be suspended? Or will M&A activities pick up again in the medium run? Regarding the number of deals, it is too early to tell how the outbreak of the COVID-19 pandemic will affect the performance of the M&A index.”