Wednesday, August 12, 2020

Strongest slump in seven years

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Mannheim utility MVV

The group was taken over in early April. The deal came too late for the first quarter.


(Photo: dpa)

Frankfurt They still exist: takeovers that are being implemented despite the Corona crisis. The most recent example comes from Germany, where the infrastructure investor First State acquired the Mannheim regional supplier MVV Energie at the beginning of April. The existing shareholders ENBW and Rheinenergie sell a total of 45.1 percent of their holdings and, according to financial circles, will receive around 750 million euros.

The deal is one of the largest in Germany this year. As a consultant, Perella Weinberg collects commissions from the sellers and the Metzler bank and Macquarie from the buyer. First State is part of Mitsubishi UFJ, the Mitsubishi Group’s financial arm.

However, the deal came too late for the first quarter. Freshfields Bruckhaus Deringer law firm estimates that the volume of mergers and acquisitions (M&A) fell 35.3 percent worldwide in the first quarter of the current year to $ 498 billion compared to the previous quarter. There has been no such slump in seven years.

The big transactions came from Europe. This included the takeover of the insurance broker Willis Towers Watson by the British competitor Aon for $ 30 billion. The mega deals also included the takeover of the Thyssen-Krupp elevator business by the financial investors Advent and Cinven.

Hope for a quick recovery

For Patrick Frowein, head of the investment bank for German-speaking countries at Deutsche Bank, the consulting business is slowing down due to Corona. New transactions would rather be postponed. “It is difficult to find prices as long as the environment is unclear as now,” says the expert. As soon as the fog clears, it expects the M&A market to recover very quickly. “Companies will cut their debts, separate from business activities or sell business areas because consumer behavior has changed,” says Frowein.

The law firm Freshfields expects a stronger contractual protection in the takeover documents in the future. The experts cite the so-called closing account as an example. An estimated price is then agreed, which is then adjusted based on a balance sheet date. This is to get the price fluctuations on the markets under control. Fixed prices are usually the norm and can no longer be shaken. According to the lawyers, guarantee insurance also comes into play.

Overall, Freshfields warns of the great unknowns that currently exist: “Nobody knows how the infection can develop and how long it will last,” the experts write. When the infection was brought under control in the Sars epidemic in 2003, M&A even rose above the pre-crisis level within months.

But this time the cuts are deeper in many countries. In addition, given the globalization, the economies are more closely interwoven. But the positive development in China is giving some light, and the first deals are coming back here.

More: Mergers in the crisis are paying off – also for investors.

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