U.S. buyers A Flood of Foreign Suitors

Investors from the United States and elsewhere are increasingly buying German companies. Star investor Warren Buffett's purchase of a Hamburg motorcycle parts maker may be the start of a trend.
A bicycle stunt man from the Czech Republic entertains shoppers in January at Eastgate Mall in Berlin's Marzahn district. Foreign buyers are increasingly eyeing Germany for takeovers.

Only a year ago, German companies appeared to be caught up in a trans-Atlantic takeover frenzy, with companies such as Merck, Siemens and Bayer going on shopping sprees in the United States. Now, financial investors from the United States, their board-room pockets bulging with dollars, are mounting their own takeover offensive in Germany.

Warren Buffett, the U.S. star investor and one of the world's richest men, is leading the way. After a quarter century courtship, Omaha, Nebraska-based Mr. Buffett has finally managed to acquire Detlev Louis, a family-owned maker of motorcycle gear based in Hamburg.

This may be just the beginning.

"We are interested in buying more German companies," Mr. Buffett said in an interview with Handelsblatt.

Other U.S. financial investors are following in Mr. Buffett's wake, seeking takeover candidates for their funds in Germany.

Leon Black, the founding partner of U.S. investment fund Apollo Global Management, described Germany as a "wonderful place for investment." The country has highly attractive companies with strong exports, he said on Tuesday at Super Return, a private equity convention being held this week in Berlin.

American companies will buy even more businesses in Germany this year. Volker Krug, Partner, Deloitte

"This year I expect to see about five to seven deals ranging from €500 million to €2 billion in the German market," said Steve Koltes, co-founder of investment firm CVC Capital Partners.

Volker Krug, a partner with consulting firm Deloitte, expects that "American companies will buy even more businesses in Germany" this year.

Investors are particularly enthusiastic about the small and mid-sized companies that make up Germany's Mittelstand. Last year, foreign financial investors bought stakes in German companies worth $48.3 billion.

Many German businesses own global brands, and many are market leaders, which makes them attractive to foreign investors.

This is especially true of U.S. investors, who, according to Deloitte, make up a fifth of foreign buyers in Germany. The euro's relative weakness against the dollar is also a factor. The strong dollar will only increase interest by U.S. companies in acquiring European firms, said Berthold Fürst, the head of mergers and acquisitions for Germany at Deutsche Bank.

Financial investors are well armed for their German shopping spree. According to industry information, private equity funds control a massive $1.2 trillion in funds.

 

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Mr. Buffett, who is 84, talked turkey in the interview: "We can pay cash for any company, no matter how big it is."

The interest in European businesses was clear at this year's Super Return conference in Berlin.

Only two hands went up when the host asked: "Who believes this isn't a good time to invest in Europe?" The remaining attendees – 1,000 investors, attorneys and consultants from around the world – did not raise their hands.

Most are convinced there has never been a better time to invest in Germany and Europe.

Despite the euro crisis, slow economic growth and the uncertainty surrounding the stability of Greece, there are many good reasons for Americans to invest over here, said Hugh Langmuir of British private equity company Cinven.

Europe makes up a third of the world's gross domestic product, has more important companies than any other region and a lot of intellectual capital, Mr. Langmuir said.

The relaxed monetary policy of the European Central Bank has also driven takeover financing down to historically low rates.

There is no particular industry preference, however. Foreign investors have increasingly been drawn to many German companies with solid balance sheets and strong exports.

Private equity funds are often attracted to the smaller Mittelstand businesses, which make up about 90 percent of Germany's economy.

Foreign investors have a better image now in Germany than they did a few years ago.

Ten years ago, a leading Social Democratic politician, Franz Müntefering described them as "corporate locusts" that sucked businesses dry and destroyed jobs.

After nearly a decade of conservative rule under German Chancellor Angela Merkel, British and American managers are welcome again in German boardrooms.

Quelle: Getty Images
Warren Buffett's Berkshire Hathaway recently purchased a Hamburg maker of motorcycle parts, Detlev Louis. U.S. investors are increasingly targeting Germany for takeovers.

 

"They've become accustomed to private equity," Steve Koltes of CVC Capital Partners told Handelsblatt. "They have had plenty of experience with these firms today, and the situation is completely different from 2005."

Leon Black of Apollo Global Management, a legend in the private equity industry, sees more than just opportunity for acquisitions. He also believes this is a good time for German companies to be selling their firms, because prices are "very high."

Private equity is booming as institutional investors search for yield.

"We still promise double-digit returns, which is why extremely large amounts of money are flooding into the industry," said a German manager in Berlin, who declined to be named.

In 2014, for example, about 3,250 takeovers worldwide were funded with private equity, with a total transaction value of €300 billion. On the whole, the industry is sitting on a whopping $1.2 trillion for purchases, an increase of about 10 percent over last year.

Financial investors pumped more money into German businesses last year than they have at any time since the 2008 economic crisis.

They invested more than €7 billion in German companies, or 40 percent more than in 2013, according to the German Private Equity and Venture Capital Association, or BVK. Investors were able to capitalize on strong corporate results, an optimistic business outlook and favorable financing terms tied to low interest rates. The industry expects acquisitions to increase by about 10 percent again in 2015.

"We expect a slight rise, but not an explosion," said Wilken von Hodenberg, the co-chairman of the venture capital association.

 

Astrid Dörner covers finance from New York for Handelsblatt, Daniel Schäfer is the editor of Handelsblatt's finance section and Peter Köhler leads coverage of banking for Handelsblatt in Frankfurt. To contact the authors: [email protected], [email protected], [email protected]