Media and cleantech transactions stagnate — M&A activity in industrial services increases
According to our evaluations and experience, the 3rd quarter tends to be characterized by fewer financial statements — processes are often extended in this phase until the annual financial statements are prepared in order to enable an efficient company transition without interim financial statements.
In fact, in terms of the number of transactions, 2013 was rather a quiet year in the media sector. On the other hand, there were some very striking lighthouse transactions with a signal effect for 2014: Acquisition of the scientific publisher Springer Science + Business Media by financial investor BC Partners in June 2013 for EUR 3.1 billion, acquisition of Scout24 Group by US financial investor Hellman & Friedman (EUR 1.4 billion for 70 percent); partial exit of Axel Springer regional newspapers and TV program guides to Funke Mediengruppe for EUR for 70 percent); sale of Axel Springer’s regional newspapers and TV program guides and women’s magazines to Funke Mediengruppe for EUR 920 million (subject to approval by the Cartel Office), partial exit of financial investors Kohlberg Kravis Roberts & Co (KKR) and Permira from ProSiebenSat1 (proceeds: just under EUR 2 billion). And in the agency environment, consolidation has progressed further and further, with the focus of the major networks shifting more and more to Asia, to agencies with a high level of digital expertise, and to industry specialists, bswp. from the health care sector.
Developments in the cleantech sector vary greatly in some cases from segment to segment. In the recent past, the numerous insolvencies in the renewable energy sector in particular have made investors and capital providers more cautious. In general, there are currently only a small number of attractive targets in the mid-cap area for financial investors, for which high purchase prices are then usually demanded. In addition, many mid-sized cleantech companies are difficult to identify and are often still early-stage, making them more attractive to the VC market. Many business models have yet to prove themselves and are dependent on political decisions, which has a negative impact on deal activity as many investors currently prefer stable industries.
In the media sector, the trend applies in particular to Germany, where there were even declining deal numbers compared to the previous quarters as well as compared to Q3 2012. However, this may also be due to the lighthouse deals, which demand a lot of attention from the M&A departments of the companies involved and accordingly less capacity is available for other deals (acquisitions).
In the cleantech segment, the solar industry in Germany in particular has suffered greatly. An end to this development is not yet in sight, especially since there are also strong political discussions about the rising price of electricity and the feed-in tariff, which is important for investors, adding to the uncertainties. In the other segments, Germany is traditionally well positioned, e.g. in the automotive industry. in energy efficiency, mechanical engineering or mobility, but still somewhat behind other countries as an M&A market. German cleantech companies are usually well managed and internationally oriented, but are often not perceived as such. Therefore, there is potential for increasing transactions in Germany in the medium term, especially with the involvement of private equity.
Regardless of the sector, we expect a very lively M&A market in 2014: the earnings of previous years are available to corporates as acquisition currency, as are their own mostly highly valued company shares. Banks are ready with favorable terms and full balance sheets for acquisition financing, and 2013 was a record year for fundraising in the private equity environment. In this respect, a lot of capital is looking for attractive assets. And rarely have there been so few “crisis indicators” on the horizon during a bull market phase.
In the cleantech sector, consolidation in renewable energies will continue until prices and capacities have normalized internationally, especially for solar modules. A recovery of the industry also depends on how the political framework conditions regarding feed-in tariffs develop in the individual countries and thus on the general demand. Germany has a pioneering role in the field of renewable energy as a result of the nuclear phase-out, which will have a positive impact on investment and the general business outlook in this area in the medium term. As the leading location for green technologies in Europe, Germany’s importance as a target country for M&A transactions will continue to grow and increasingly attract foreign investors.
For industrial services, we expect deal activity in the industrial services sector to continue to rise, driven by the upward trend in the overall M&A market. However, you have to take a closer look at the individual segments. In the facility services sector, for example, providers can benefit from the energy transition by offering sustainable products in energy optimization. Innovative solution providers increase their market value and thus become interesting for major players. Another aspect is the minimum wage, which will contribute to consolidation. Service providers who cannot pass on wage increases to customers quickly become targets for takeover.
For the media environment, we expect many transactions in the area of (a) Digitization of business models (Big Data, mobile distribution, special interest TV channels) (b) Developing adjacent revenue streams (transaction revenue, couponing, etc.); and © Further agency consolidation.