German dealmaking this year may go down as one of the worst in the past decade after regulatory opposition killed Deutsche Telekom AG’s sale of T-Mobile USA and threatened Deutsche Boerse AG’s takeover of NYSE Euronext.
Announced acquisitions involving German companies in 2011 slumped to $96 billion after AT&T Inc. this week abandoned its $39 billion purchase of T-Mobile, according to data compiled by Bloomberg. Should Deutsche Boerse’s bid for NYSE falter, the total will decline to about $86 billion, the lowest level since 2003 and the second-lowest in the past 10 years, the data show.
Concerns about a breakup of the euro and recession in the 17-nation currency region have also made German companies leery of spending on deals, overshadowing their near-record cash piles and their faster-growing economy, M&A bankers say. Transactions of less than $500 million accounted for 97 percent of German deals this year, according to the data.
“German executives have adopted an extreme attitude of cautiousness because of the sovereign debt crisis and uncertain economic outlook,” said Alexander Gehrt, head of German M&A at UBS AG. “Quite a number of companies are also making organic investments and lastly, German companies had already been very active in the years 2005 to 2007.”
While the German economy is Europe’s largest and gross domestic product growth outpaced the U.K. and France this year, those regions produced more deals. The U.K. remains the largest market, with $317 billion of announced M&A, while France had $164 billion, the data show.
Credit Suisse Dominates
Credit Suisse Group AG of Zurich advised on the most deals in Germany, with about 34 percent, beating out JPMorgan Chase & Co., Goldman Sachs Group Inc., Deutsche Bank AG and Citigroup Inc., according to Bloomberg data. Goldman Sachs’s ranking benefited from the defeat of the T-Mobile USA deal, as the bank was the only one of the five without an advisory role.
AT&T and Deutsche Telekom abandoned the transaction after U.S. regulators said the combination would hurt competition, scrapping what would have been the biggest takeover of 2011. The collapse means Bonn-based Deutsche Telekom will get a $3 billion fee in cash, wireless spectrum and a more favorable network-sharing agreement, according to the terms.
Deutsche Boerse’s planned $9.5 billion takeover of NYSE Euronext, which would create the largest exchange, also has attracted antitrust scrutiny. On Dec. 13, the companies offered further concessions to European regulators to soothe worries about their dominance in the European single-equity derivatives market. The deadline for the European Commission to rule on the merger was extended until Feb. 9.
“If you take out those two deals, 2011 ends up pretty bad,” said UBS’s Gehrt. “We haven’t seen much of the bread-and-butter deals of $500 million to $1.5 billion this year.”
The financial services, automotive, mechanical and industrial sectors have accounted for the most deals involving German companies this year, the data show.
M&A advisers are betting on Germany’s ability to dodge a possible euro-zone recession and policymaker response to the debt crisis to boost activity next year. German business confidence unexpectedly rose for a second month in December, the Ifo institute’s business climate index showed on Dec. 20, and the IfW and RWI economic institutes both released predictions showing economic growth in 2012.
“Historically the number of M&A deals is rising when you have rising equity markets,” said Markus Wallner, a senior equity strategist at Commerzbank AG in Frankfurt. Germany’s HDAX Index, which tracks the 110 most highly capitalized stocks, fell 0.9 percent in Frankfurt today and has dropped 16 percent this year.
Cash-rich companies such as Munich-based Siemens AG, Europe’s biggest engineering company, have signaled they will seek acquisitions to boost growth. SAP AG, the largest maker of business-management software agreed on Dec. 3 to buy SuccessFactors Inc. for $3.4 billion in cash to keep pace with rival Oracle Corp. in cloud computing.
More than 100 of Germany’s largest listed companies had cash or near cash items of 160 billion euros ($209 billion) this year, the second-highest level in the past decade, the data show. Volkswagen AG, Deutsche Bank and Siemens hold the most.
“Companies have cash, but it’s very risky to go into an economic downturn with a very high debt ratio,” Commerzbank’s Wallner said. “Companies want to keep liquidity because in case of a credit crunch, they would not get money from the banks.”
Siemens Chief Executive Officer Peter Loescher said Nov. 10 that while rivals have spurred sales growth with acquisitions, Siemens is waiting for the right time and price. The company aims to boost sales to 100 billion euros in the medium term.
“Siemens may potentially be interested in bolt-on acquisitions in the areas of smart grids, energy management and monitoring software, and inverters for the automotive industry,” said Sjoerd Ummels, an analyst at ING Groep NV in Brussels. Philipp Encz, a spokesman for Siemens, declined to comment.
The European Central Bank today lent euro-area banks a record amount, 489 billion euros, for three years. The move is the bank’s latest attempt to ensure lenders have access to cheap cash so they can provide financing to companies and households, helping to shore up economic growth.
“CEO confidence is the most important factor and will have to improve if we want to see more transactions in 2012,” said Ken Oliver Fritz, head of the investment banking unit for Germany and Austria at Credit Suisse. “Once the wait and see mode has changed, we might see some positive surprises.”