The high octane mergers and acquisitions sector is moving from New York and London to Silicon Valley as financial institutions realise that the big deals of the future will involve technology firms.
The proportion of M&A activity involved in digitalization has grown by an average of 5 percent per year since 2007, bringing the total number of such deals worldwide to 773 in 2015. A survey of 240 managers of M&A departments worldwide showed that companies would rather make acquisitions than develop digital solutions themselves.
“Takeovers of young tech companies by large corporations are gaining momentum,” said Sven Wahle, head of M&A in German-speaking countries at Accenture Strategy.
“Digitalization and artificial intelligence are playing an increasingly important role in business with mergers and acquisitions.”
Even venerable old investment banks like Rothschild & Co. have accepted that they need to move with the times. The 200-year-old institution, which has its roots in Frankfurt, is to open an office in the greater San Francisco area on August 7, headed by Chris Gaertner and Walid Khiari, who want to build a bridge between the worlds of technology and banking.
Many takeovers have gone largely unnoticed so far as the purchase price has been comparatively low, but this is set to change with a number of larger deals in the pipeline. A few days ago, the world’s biggest asset management company, BlackRock, acquired a stake in the German digital asset manager Scalable. Dutch insurance group Aegon has invested in the German online lending platform Auxmoney.
A similar trend is emerging outside the financial sector, with established companies such as German carmaker Daimler, US conglomerate General Electric and German technologies group Siemens looking to acquire newcomers, or at least buy significant stakes in them. “Digitalization and artificial intelligence are playing an increasingly important role in business with mergers and acquisitions, as the billion-dollar purchase of the visual technology company Mobileye by Intel has shown,” said Dirk Pahlke, head of M&A business in German-speaking countries at Rothschild.
Large corporations in particular are dependent on new technologies and new approaches, some of which they do not have themselves. Acquisitions are a good way to get the expertise they need, and in some cases may be the only solution.
This does not mean M&A activity elsewhere is tailing off. Fee income in Germany’s investment banking sector rose by almost 60 percent year on year in the first half of 2017 to $1.24 billion. Deutsche Bank earned the most from issues of bonds, equities, mergers and acquisitions and loans, followed by US rivals Goldman Sachs and Bank of America Merrill Lynch.
The volume of transactions in M&A business in which German companies were involved dropped by 35 percent to $75.6 billion in the first six months of this year, although this was due to the mega-merger between German chemicals and pharmaceuticals giant Bayer and US seeds group Monsanto in the corresponding period of last year, which was worth $64 billion, according to data from the information service Thomson Reuters.
This year’s biggest transactions so far have included the merger of telecoms operators 1&1 and Drillisch and the takeover of construction equipment manufacturer Wirtgen by the US agricultural machinery maker Deere. Investment bankers are expecting further mega-deals later in the year.
Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. Robert Landgraf is Handelsblatt’s chief correspondent for the financial markets. To contact the authors: firstname.lastname@example.org and email@example.com