Industrialization through investments – DACH industry structure and success factors for direct investments
26 June 2018
Prof. Dr. Christian Aders
0
1,000
2,000
3,000
4,000
5,000
2014 2015 2016 2017
Germany Switzerland Austria
0
1,000
2,000
3,000
4,000
5,000
2014 2015 2016 2017
Germany Switzerland Austria
Economic basis: Strong GDP in the DACH region (Germany, Austria and Switzerland)
Source: Statistisches Bundesamt, UBS, WKO, IMF.1) Gross domestic product (GDP) is a key measure of the economic performance of a national economy and includes all goods and services produced within the geographical borders of aneconomy in a given period and valued at market prices, apart from intermediate goods used to produce other goods and services.2) No data available for Switzerland in 2017; figures from previous year were assumed.
June 2018 2
Total GDP1) in DACH region (EUR bn) GDP DACH w/o infrastructure & financial services2) (EUR bn)
3,789 3,977 4,100 4,212
3,184 3,340 3,447 3,571 2)
3,000
5,000
4,000
2,000
1,000
02014 2015 2016 2017 2014 2015 2016 2017
Growing GDP (ca. 4% p.a.) in DACH region exceeded EUR 4,200 bn in 2017.The largest GDP share is contributed by Germany.
3,000
5,000
4,000
2,000
1,000
0
Four strategic approaches exist to accelerate industrialization and know-how transfer into Arab world
1) Direct investments are defined by equity participations over 20%, which allow to influence company strategy, e.g. to invest in foreign production facilities to realize market synergies inforeign markets.
June 2018
Direct investments1) in foreign companies
Own investment in R&D, HR and production facilities
Industrialization and know-how transfer
Purchase of products and services from foreign companies and
inbound investments of them
Joint Ventures with foreign companies
High demand from foreign investors for companies “made in DACH” region due to leading edge technology & production know-how is one of the key drivers for M&A activity in the region.
3
A case study: The public takeover of a leading automotive components provider GRAMMER by a Chinese investor for about 0.8 bn
Source: Börsenzeitung, June 12, 2018.
“Jifeng is under pressure to succeed.
Their expansion is a building block in Beijing's strategy to significantly improve the quality
of its own economy.
The automotive industry is a key factor here. Therefore, Jifeng could possibly finance the
takeover with loans from Chinese state banks.”
June 2018 4
Foreign investors do continuously direct investments to accelerate know-how transfer.
0
20
40
60
80
100
120
140
160
2014 2015 2016 2017
Germany Switzerland Austria
0
500
1.000
1.500
2.000
2.500
3.000
2014 2015 2016 2017
Germany Switzerland Austria
Overall transactions in the DACH region of the last four years show a stable high volume and number of M&A transactions
Source: S&P Capital IQ, ValueTrust Analysis.
June 2018
Deal volume of DACH-M&A transactions in last 4 years (EUR bn) Number of DACH-M&A transactions in last four years
2,338 2,446 2,446 2,338
Large number of overall M&A transactions in DACH region.
Ø EUR 105 bn p.a. Ø 2,400 transactions p.a.
Ø EUR 45 m per target
108.7100.9
69.3
140.3
5
3,000
1,500
1,000
500
0
120
100
40
20
0
2014 2015 2016 2017
60
80
140
160
2,000
2,500
2014 2015 2016 2017
0
400
800
1.200
1.600
2014 2015 2016 2017
Germany Switzerland Austria
Transaction landscape shows a decreasing deal volume when excluding real estate and financial targets as well as two Swiss mega transactions
Source: S&P Capital IQ, ValueTrust Analysis; 1) excl. real estate & financial target; excl. EUR 41 bn Syngenta and EUR 27 bn Actelion transaction in Switzerland in 2017.
June 2018
Deal volume of DACH-M&A transactions in last 4 years (EUR bn)1 Number of DACH-M&A transactions in last 4 years1
1,4651,575 1,628 1,571
Stable amount of transactions of which about 30% are inbound.
Ø EUR 55 bn p.a. Ø 1,600 transactions p.a.
Ø EUR 35 m per target
0
20
40
60
80
2014 2015 2016 2017
Germany Switzerland Austria
77.2
59.4
45.739.2
6
1,600
1,200
800
400
0
80
60
40
20
02014 2015 2016 2017 2014 2015 2016 2017
0
400
800
1.200
1.600
2014 2015 2016 2017
Germany Switzerland Austria
0
20
40
60
80
2014 2015 2016 2017
Germany Switzerland Austria
High and persistent levels of inbound M&A transactions into DACH region
Source: S&P Capital IQ, ValueTrust Analysis; 1) excl. real estate & financial target; excl. EUR 41 bn Syngenta and EUR 27 bn Actelion transaction in Switzerland in 2017.
June 2018
46.5 47.1
34.3 31.5
446505 528 495
Higher deal volume of 80 m per target for inbound M&A transactions in DACH region.
Deal volume of DACH-M&A transactions in last 4 years (EUR bn)1 Number of DACH-M&A transactions in last 4 years1
Ø EUR 80 m per target
Ø EUR 40 bn p.a. Ø 500 transactions p.a.
7
1,600
1,200
800
400
0
80
60
40
20
02014 2015 2016 2017 2014 2015 2016 2017
Most inbound M&A transactions are small sized and within three industries
Source: ValueTrust Analysis, S&P Capital IQ.
June 2018
About 75% of all inbound M&A-targets are operating in the industries industrials, IT and consumer goods. More than 50% of deals are below EUR 50 m.
Targets by industry Size classes of targets in EUR (by number of deals, 2014-2017)
Industrials & chemicals
34%
IT & telecom26%
Consumer goods22%
Healthcare14%
Energy & utilties4%
< 25 m43%
25 m - 50 m13%
50 m - 250 m26%
250 m - 500 m7%
> 500 m11%
8
Healthcare (14%)
Energy & utilities (14%)
Industrials and chemicals
(34%)
IT and telecom(26%)
Consumergoods(22%)
25 m – 50 m(13%)
50 m – 250 m(26%)
250 m – 500 m(7%)
> 500 m(11%)
< 25 m(43%)
M&A activities focus on the hot spots in the DACH region. The “Hidden Champion Belt” is an attraction point for domestic and foreign investments
Source: ValueTrust Analysis, S&P Capital IQ; 1) Data over the last 4 years, excl. real estate and financial targets.
Geographical distribution of targets in DACH region1)
North Rhine-Westphalia as the most populous
state of Germany shows high M&A activity
Berlin is one of Europe’s greatest hubs for start-up and IT companies, displaying high M&A activity in this domain
In Austria the focus of M&A transactions is on
the cities Vienna, Salzburg, Innsbruck and Graz
M&A activity in Switzerland focuses on the northern part and
peaks in the Zurich area
The “Hidden Champion Belt“ stretches from southwest Germany
and northern Switzerland across Munich area to Vienna
Inbound transactionsIntra-DACH-transactions
The “Hidden Champion Belt” has a high density of world-leading SME technology companies, which attracts large domestic and foreign investments.
June 2018 9
0% 20% 40% 60% 80% 100%
Europe (excl. DACH) North America
Asia / Pacific Others
Arab world
Mainly Europeans and Americans - investing in diverse range of industries
1) ”Arab world” defined as Ghorfa members.
June 2018
1)
Investments from Arab world1 are falling massive behind. The second largest seller group Private Equity (PE) is a natural source of deals to catch up
fast and to buy well developed and excellent performing companies.
59% 26% 12% 1%
Buyers by geography Sellers by type
0% 20% 40% 60% 80% 100%
Corporate (private) / owner / family
Private Equity
Corporates (public)
10
35%42% 23%
0% 20% 30% 40% 50% 60% 0% 20% 30% 40% 50% 60%
Small-Cap Large-CapMid-Cap
DACH region provides a diverse universe of Private Equity funds as potential deal sources
June 2018
Source: ValueTrust Analysis, S&P Capital IQ.
DACH
Global
Europe
11
Local Other PE firms
95
8680
71
0
10
20
30
40
50
60
70
80
90
100
2014 2015 2016 2017
Large number of acquisitions shows stable interest in DACH companies from Private Equity (PE)
Source: ValueTrust Analysis, S&P Capital IQ; Note: 1) According to number of acquisitions.
June 2018
DACH Private Equity funds have stable investment portfolios throughout recent years and exit investments due to their business model on average after 5 years.
Total number of DACH PE fund acquisitions (2014-2017)1) Number of acquisitions per Top 10 DACH PE funds (2014-2017)1)
12
42
17
15
14
14
14
13
11
11
10
0 20 40
Partners Group
Gimv NV
Deutsche Beteiligungs AG
Hannover Finanz GmbH
Montagu Private Equity LLP
Ufenau Capital Partners AG
AFINUM Management GmbH
Waterland Private Equity GmbH
VR Equitypartner GmbH
Gilde Buy Out Partners AG95
8680
71
2014 2015 2016 20170
10
20
30
40
50
60
70
80
90
100 10
11
11
13
14
14
14
15
17
42
0 20 40
Gilde Buy Out Partners AG
VR Equitypartner GmbH
Waterland Private Equity GmbH
Afinum Management GmbH
Ufenau Capital Partners AG
Montagu Private Equity LLP
Hannover Finanz GmbH
Deutsche Beteiligungs GmbH
Gimv NV
Partners Group
32
13
11
11
10
10
9
8
8
8
0 20 40
Gimv NV
Partners Group
Hannover Finanz GmbH
capiton AG
Waterland Private Equity GmbH
Deutsche Beteiligungs AG
Gilde Buy Out Partners AG
BayBG mbH
FSN Capital Partners AS
Mutares AG
Divestments universe of Top 10 DACH Private Equity (PE) funds shows stable number of divestments
Source: ValueTrust Analysis, S&P Capital IQ; Note: 1) According to number of divestments.
June 2018
Stable number of DACH Private Equity (PE) divestments can be used as an entry point for investors from Arab world.
Total number of DACH PE fund divestments (2014-2017)1) Number of divestments per Top 10 DACH PE funds (2014-2017)1)
63
56
63
53
0
10
20
30
40
50
60
70
80
90
100
2014 2015 2016 2017
13
6356
63
53
2014 2015 2016 20170
10
20
30
40
50
60
70
80
90
100 8
8
8
9
10
10
11
11
13
32
0 20 40
Mutares AG
FSN Capital Partners AS
BayBG mbH
Gilde Buy Out Partners AG
Deutsche Beteiligungs AG
Waterland Private Equity
Capiton AG
Hannover Finanz GmbH
Partners Group
Gimv NV
Divestment universe of DACH Private Equity (PE) funds shows focus on three main sectors
Industrials; 27,4%
Non-basic Consumer Good;
20,0%
Information Technology; 9,5%
Materials; 10,5%
Bas ic Consumer Good; 5,3%
Healthcare; 12,6%
Others ; 14,7%
Industrials; 25,4%
Non-basic Consumer Good;
19,7%
Information Technology; 18,3%
Materials; 8,5%
Bas ic Consumer Good; 7,0%
Healthcare; 9,9%
Others ; 11,3%
Source: ValueTrust Analysis, S&P Capital IQ.
June 2018
Divestments as a basis for Arab world’s direct investments in the most relevant target industries: industrials, consumer goods and IT.
Divestment industries of all DACH PE funds (2014) Divestment industries of all DACH PE funds (2017)
2014 2017
14
Others (14.7%)
Healthcare (12.6%)
Basic consumer
goods (5.3%)
Materials (10.5%) IT
(9.5%)
Industrials (27.4%)
Non-basic consumer goods
(20.0%)
Others (11.3%)
Healthcare (9.9%)
Basic consumer goods
(7.0%)
Materials (8.5%)
IT (18.3%)
Industrials (25.4%)
Non-basic consumer goods
(19.7%)
Success factors for Arab investors to do direct investments
June 2018
Industrialization and know-how transfer
15
Key success factors are a local acquisition team with competence to make quick decisions and an acquisition strategy, which is based on Arab world’s industrialization strategy to be
the “Best Buyer” with highest synergies and a competitive bid price.
▪ A bidder is only successful if he can position himself as “Best Buyer"▪ Valuation of synergies is a critical aspect for the right offer price ▪ Focus on focus industries in order to consistently evaluate synergies
▪ To be informed of transactions in time▪ Grant access to decision-makers in target
companies and sellers as well as gatekeepers (e.g. lawyers, investment banks and PE funds)
▪ Image and PR campaign to be "on the radar"
▪ Knowledge of local characteristics of M&A process ▪ Process typically takes about six months with clear structures ▪ Process knowledge leads to better assessment and control ▪ Critical decisions should be made quickly
Network Local process knowledge
Synergies
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