Bubble trouble

Danger Lurking in the DAX

  • Why it matters

    Why it matters

    Despite a healthy German economy, an excess of intangible assets, worth billions, on DAX companies’ books, poses a growing danger.

  • Facts


    • Record-low interest rates are pushing more German companies toward overpriced acquisitions.
    • As a result, many listed companies’ balance sheets – and in turn their market valuations – are inflated. That’s because rather than including hard assets, their books reflect expected profitability of new acquisitions, known as “goodwill.”
    • Handelsblatt has identified seven German companies whose debt loads would exceed their total equity if they were forced to write off all the goodwill in their books.
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Pop goes the DAX? Source: Getty

When one of Germany’s most valuable companies acquired its American competitor, news of the purchase hardly made the headlines in any major papers. But for industry observers, the deal between major German healthcare company, Fresenius and Akorn, a maker of generic pharmaceuticals, was the latest sign of an unsettling trend in Germany.

“A driver of this development are low interest rates,” said Commerzbank equity strategist Markus Wallner. These make “relatively expensive acquisitions with high premiums seem affordable.”

This trend means many German companies’ consolidated balance sheets are inflated, consisting of fewer hard assets such as machinery or patents and instead reflecting the cost of their new acquisitions.

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