Difficult, But Feasible: A special M&A year in DACH requires special solutions

Bastian Frien, FINANCE Think Tank

The consensus is in: It has been an extraordinary year for M&A in DACH due to the Coronavirus. Experts Dr. Andreas Hoger, Dr. Sven Oleownik, Moritz von Bodman and Jürgen Zapf were in agreement at the recent online event "M&A 2020 - a year of crisis examined", hosted by Datasite in partnership with FINANCE Think Tank.

Optimism ahead
Markus Schiller, responsible for the DACH region at Datasite, explained that, without the pandemic, 2020 could have been a very good year for M&A, according to Datasite and Mergermarket data. While January and February were very strong months, the slump in the following three months was all the deeper. However, Schiller pointed out that the mood among market participants that had reached a low in March, has been improving every month since then, and that he was therefore quite optimistic for the second half of the year.

In an online poll, the audience also showed a certain confidence. The participants considered consumer optimism the main deal driver to bring the economy back on track, followed by the expected restructuring cases. For the next 24 months, they expect restructuring to be dominated by divestitures and insolvencies. And the technology that could help them best complete M&A transactions? Tools that increase speed and efficiency, as well as the capability to complete due diligence virtually.

Challenges and uncertainty
Currently, the market is characterized by uncertainty. Moritz von Bodman, Managing Director of mid-cap boutique GCA Altium, observed that many are worried that they could miss the right time to buy because they expect a steep recovery analogous to the financial crisis. And for individual companies, buyers are uncertain about how things will develop in the coming months and years.

Private equity investor Sven Oleownik, Head of Germany of Gimv, sees three classes of transactions:

• Those companies that have not been affected by the pandemic or even profit from it; these targets are being strongly courted, and prospective buyers continue to offer high prices for them.
  
• For companies that were already in trouble before the pandemic, there is currently no market.
• Most exciting from a market perspective is the large group of basically well-positioned companies that have been hit by the pandemic but whose difficulties are likely to be temporary.
  In this group there are companies that now want to divest themselves of parts of their business. Others see an opportunity to finally buy the long-awaited target, but need external capital providers for this. In the current market environment, it is crucial to provide both the buyer and the seller with sufficient security for a transaction to take place.

Flexibiilty in focus
Value assessment is the greatest operational challenge. Due diligence expert Jürgen Zapf, who heads the German business of Alvarez & Marsal, does not see completely new approaches in company auditing, but clearly shifted priorities. Above all, the operational flexibility of companies to implement both cost savings and growth scenarios has moved into focus.

In order to close a deal, buyers and sellers currently have to be much more creative to share the risks. Andreas Hoger, partner at Hengeler, observes more vendor loans and earn-out concepts. The phase between signing and closing has become riskier, and the "ordinary course of business" is difficult to define in these extraordinary times. Both sides must be ready to bite some bullets to make the deal happen.

Nevertheless, a certain optimism about M&A in DACH persists, despite the many uncertainties that the coming months may hold. The participants agreed that 2020 will be special and difficult, but not a disastrous M&A year.