Company acquisitions and IPOs

Dr. Volker Geyrhalter, Head of the Corporate Practice Group in Europe and Partner at Hogan Lovells in Munich, on the M&A year 2019 in Germany:

1. What are your expectations for 2019? Will we see more cross-border transactions in 2019? This year we have seen a large number of large-cap transactions in Germany. Will this trend continue next year?  

The prerequisites for a good start into the M&A year 2019 are in place. Thanks to a stable political environment and a growing economy, Germany is on solid footing. There is also great interest from foreign investors, especially from the USA, to invest more in the German market. We expect a robust deal flow in the coming year, especially in the mid-cap area. It remains to be seen whether we will also see domestic mega deals of German companies - as in 2018. Particular attention will be paid to the increased regulatory environment, which will make it more difficult for foreign buyers to acquire German companies. It is to be expected that the German government will increasingly examine transactions with international buyers in 2019 and, if necessary, prohibit them in particularly critical cases.

2. What impact will Brexit have on deal flows in Germany? Will the Brexit effect be felt in the German M&A market?

From an M&A point of view, Germany will be the winner of Brexit. Brexit will positively influence the deal flow of mergers and acquisitions in Germany. We expect that international investors, who in the past saw London as a gateway to the European market, will increasingly turn their attention to Germany.  

3. The growth of the economy in the eurozone weakened further in November. What does this mean for the valuations of companies currently up for sale?

Due to very high demand from strategic and financial investors, the German M&A market is currently a seller's market in which sellers benefit from very high valuations and dictate the conditions to buyers. A further weakening of the European economy could lead to a valuation adjustment of the companies. This could lead to transaction processes being postponed until the next upswing occurs. A valuation adjustment would certainly do the overheated transaction market good to bring some normality back into the market.

Prof. Dr. Michael Schlitt, Partner and Head of Corporate Capital Markets and Securities in Europe at Hogan Lovells in Frankfurt, on the expectations for the IPO market in 2019:

1. What are your expectations for 2019? Are you positive that 2019 can be a good IPO year?

We expect a healthy pipeline of new issues in the German mid-cap sector in the first half of 2019. Some companies that postponed their planned IPO in the second half of 2018 due to the stock market correction and political developments are likely to try again in the new year. The trend of carve-outs and spin-offs from corporate conglomerates that dare to step onto the trading floor also seems to continue in the new year. 2019 could therefore be a really good year, with a large number of interesting large-cap transactions.

2. Should stock market candidates be worried about the volatile capital market?

Of course, investors, especially in the case of IPOs, orient themselves very closely to what is happening on the financial markets, and they have been more restless recently due to political developments. Nevertheless, we have seen time and again in recent years that companies that offer a convincing equity story are attractive to investors and have thus been able to successfully enter the market.

3. The German-Chinese trading platform Ceinex is slowly gaining momentum. What does this mean for the German capital market?

In general, this initiative by Deutsche Börse is to be welcomed, because such cooperation makes the German capital market even more attractive for foreign companies. The first issue of D-Shares was a promising start. Further issues must now follow so that the platform can establish itself.  

Dr. Matthias Jaletzke, one of the leading German private equity and M&A lawyers and partner at Hogan Lovells in Frankfurt, on trends and prospects for the PE market in 2019:

1. What is your forecast for 2019? Are we facing changes in the market?  

I do not expect any major changes in the German private equity market in the foreseeable future.  2019 will be another year of fierce competition for a limited number of coveted assets. The linchpin will be whether we experience another major financial crisis. If so, banks will not provide the necessary loans. I don't think Brexit will have a significant impact on the German market, which is dominated by mid-cap transactions.

2. Let's look at 2018: Private equity seems to be turning away from the German automotive industry. It is said that the number of buy-outs in the automotive industry has reached an all-time low. The construction and financial services sectors also lost a lot of their attractiveness in 2018. Why are investors turning their backs on these once coveted sectors? Do you believe this to be a trend?

Traditionally strong sectors such as the automotive and manufacturing industries have not experienced a good year, because private equity funds have difficulty in identifying long-term growth prospects with reasonably rapid exit potential in these sectors. Some of these more traditional sectors react more volatilely to the geopolitical environment, such as Iran sanctions or US protectionism, which is why private equity tends to be more cautious about certain investments.

3. What distinguishes the technology and healthcare industry? What makes these sectors so attractive for private equity investors?   

The technology sector is the backbone of the modern world and a very attractive area for private equity investors due to its continued enormous growth potential. Many PE funds want to take advantage of the growth opportunities in the healthcare industry arising from changing demographics with higher life expectancy of the population. For example, retirement and nursing homes are solid sources of growth and revenue for private equity investors over many years.