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Press Release from 2018-10-16 / Group, KfW Research

Mergers and acquisitions target some 1,100 German SMEs every year

  • New analyses by KfW Research on the development and structure of M&A transactions in the German SME sector
  • Investors from Germany are predominant so far
  • However, the number of foreign acquirers has recently increased; Chinese investors have contributed to the rise
  • Manufacturers and information and communication technology enterprises are particularly sought-after targets

The latest studies by KfW Research on the development and structure of M&A transactions in the German SME sector show that small and medium-sized enterprises in Germany are prime targets of mergers and acquisitions for German and international investors. On average from 2005 to 2017, slightly more than 1,100 M&As targeting a German SME were conducted each year. Over the entire period of the analysis, the highest share of investors (58%) was from Germany. But activities of foreign investors have increased significantly since 2013. In 2017 they accounted for nearly half of all M&A deals (49%).

The new KfW analyses were conducted using the Zephyr M&A database. For the first time the analysis covered full and partial acquisitions and mergers targeting German businesses with an annual turnover of up to EUR 500 million during the period from 2005 to 2017 (see box). A total of 13,700 M&A transactions were analysed.

In the group of international acquirers, firms from Europe were predominant between 2005 and 2017 with a share of around one fourth. Investors from the UK were particularly active (5%), with portfolio and investment companies domiciled in the UK playing a major role. Investors from Germany’s neighbouring countries Switzerland (3.9%), the Netherlands (3.0%), France (2.7%) and Austria (2.3%) were also involved in many M&A deals in the SME sector. But the leading foreign investor country is the United States, with around 8.3%. Although transactions with Chinese acquirers often draw the greatest media attention, their share in M&A deals remains modest, with an average 2.2% across the period analysed. But activities by investors from the People’s Republic are on the rise. They have increasingly appeared as acquirers of German SMEs since 2010, and the share of Chinese investors peaked at 5.9% in 2016, its highest level yet, before dropping again to around 4.2% in 2017. Chinese acquirers appear to be exercising further restraint this year as well. Problems faced by acquirers in their home market are likely the main reason for this, in addition to greater political resistance against M&A transactions with Chinese participation.

The following additional key findings can be derived from the latest studies of KfW Research:

  • Most M&A deals with SMEs consisted in the full takeover of the business (53%). Only 17% and 13% of M&A deals, respectively, were minority or majority investments. Mergers played only a minor role, at 6%.
  • Investors were particularly interested in manufacturing SMEs (34%) and information and communication technology enterprises (19%).
  • In around 60% of all M&A deals, the acquirer and the target firm came from the same business sector. The share of acquirers from the manufacturing sector was therefore correspondingly high (29%). Financial investors followed in second place (21%).

“The market for acquisitions, participations and mergers with German SMEs as targets is buoyant despite minor declines in the past years”, said Dr Jörg Zeuner, Chief Economist of KfW Group. “This demonstrates Germany’s attractiveness as an industrial location and is an expression of confidence in the competitiveness of local enterprises. The generational change in the leadership of many SMEs that is coming in the next years may provide renewed impetus to the M&A market in the SME sector. More than half a million owner-managers of small and medium-sized firms plan to transfer ownership and control of their business by 2022. If they fail to find a suitable or willing successor within the family or the company, selling to another business may be an option. How many SMEs currently preparing their succession will ultimately be sold to a domestic or foreign company, however, cannot be predicted with accuracy. At the moment, at least, 42% of SMEs can imagine selling to an external party – including to another business”, said Zeuner.

The latest studies on M&A deals in the German SME sector in general and on Chinese M&A deals in the German sector in particular are available (in German only) at:
www.kfw.de/KfW-Konzern/KfW-Research/MuA_Deals

The database:
The analysis performed by KfW Research was based on the Zephyr database of Bureau van Dijk. Zephyr supplies up-to-date detailed information on M&A, IPO and private equity transactions around the world. KfW’s analyses covered only M&A transactions with a target enterprise in Germany that generates an annual turnover of not more than EUR 500 million. The analysis did not include start-ups nor the sale of specific assets such as restaurants, factories, branches, etc. It covered around 13,700 M&A transactions during the period from 2005 to 2017. The figures used refer to transactions completed during the period under review.