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The German economy is set to shrink by 10% in the three months to June as a result of the COVID-19 pandemic, but the DACH region is yet to see the effect of the pandemic on M&A value following several large transactions announced prior to the outbreak.
Large deals were recorded in Q1
DACH saw EUR 67.9bn changing hands across 246 transactions in 1Q20, recording its second highest quarterly value on Mergermarket record – only behind 1Q08 (EUR 80.2bn, 217 deals).
In the first three months of the year, 20 deals valued above EUR 500m were announced, the highest number since 4Q06 (21 deals). However, there may be signs of stress in the market following the outbreak of coronavirus as only five of the 20 deals were conducted in March.
The aggregated number of deals targeting the region also dropped as a result of the outbreak, from an average of 108 deals per month from 2017 to January 2020, to just 70 and 59 deals in February and March, respectively.
Private equity buyouts suffered
Just 39 buyouts were announced in Q1, with the monthly average falling from 19 deals between January 2017 and January 2020 to just 11 in both February and March 2020. Amid the temporary closure of the primary debt market, the drop illustrates private equity firms’ current focus on managing their existing portfolio companies and monitoring liquidity issues.
Supply chain issues may affect the deal pipeline
Industrials & Chemicals remains a key sector for dealmaking in the region, representing EUR 31.5bn of M&A in 1Q20. The sector, however, fell to just 12 deals in March. The COVID-19 outbreak has cast uncertainty over supply chains and is likely to continue to affect activity in the coming months.
Foreign investment looks uncertain
Inbound M&A enjoyed a strong start to the year before slowing due to the pandemic with 107 transactions worth EUR 54.6bn recorded in 1Q20. The future of foreign investment looks uncertain given the current difficulties in conducting high-profile deals, combined with the proposed reforms to competition laws.
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