Germany Gets Back Its Appetite for Mergers

Software giants Microsoft and SAP are discussing a possible merger; banking giant Commerzbank is in talks with Holland's ING to buy its German banking business, BHF Bank; and Deutsche Bank has declared it's on the lookout for takeover candidates. The headlines in recent days make it clear that there's once again momentum in the mergers & acquisitions business.

"The climate has changed, as you can see in the merger discussions between Microsoft and SAP," Jan Ising of the Institute for Mergers and Acquisitions at Witten-Herdecke University in the town of Witten near Essen told DW-WORLD. "You can once again talk to a company about a fusion without being immediately shown the door."

A bubble burst

After the New Economy bubble burst in Germany in 2001, mergers and acquisitions fell not only out of vogue, but also nearly out of the vocabulary. And you don't have to read tea leaves to understand why: the list of mergers and buyouts that benefited a handful of consultants and very few shareholders is long. Indeed, it runs from blue chip companies like car-maker DaimlerChrysler to erstwhile telecommunications giant WorldCom to the media conglomerate EM.TV (former license owner of "The Muppets.")

Abroad, the carousel of mega mergers has been spinning around ever more rapidly in recent years. Bank of America recently took over competitor FleetBoston Financial in a $47 billion (€38.8 billion) transaction. And this year deals have been sealed in a number of sectors. In Europe, Air France acquired Dutch flag carrier KLM. And over in Asia, American brewing giant Anheuser Busch is buying the Chinese Harbin Brewery and Japanese Internet service provider Softbank took over Japan Telecom.

But Germany is still limping behind other countries when it comes to mergers and acquisitions, Ising suggests. In recent years, German companies have mostly found themselves in the position of being the target of a bid rather than acting as the bidder. U.S. media entrepreneur Haim Saban recently purchased German private TV broadcaster ProSiebenSat1 from the ashes of the Kirch Group bankruptcy, French pharmaceutical giant Sanofi-Synthelabo took over Franco-German competitor Aventis, and U.S. household goods concern Proctor & Gamble bought Darmstadt-based Wella AG.

Gaining momentum

"We're limping behind because the stock market in Germany hasn't recovered as well as the international stock markets and most buys are made through share exchanges," Ising explains. In addition, mergers in Germany are often orchestrated by political actors rather than the markets, as demonstrated by the recent efforts by the government to orchestrate a takeover of the state-owned Postbank by privately held Deutsche Bank.

Nevertheless, mergers and acquisitions are once again being discussed at the executive level. "A clear signal of the changing trend is that companies are searching for investment bankers again -- not publicly, but the market is moving again," Ising says. After all, most companies involved in M&A activities are first approached by investment banks.

Ising says the sectors most likely to be effected by the new appetite for mergers and acquisitions are banking, the automobile industry and telecommunications. In all three sectors, consolidation is both foreseeable and necessary. But mergers to create new giants in the high tech and biotechnology industries are also to be expected, Ising says.