London — Global buy-and-build analy­sis: add-on acti­vity in German M&A market increa­ses signi­fi­cantly TMT, busi­ness services and health­care sector are the drivers.

In times of adverse finan­cing condi­ti­ons, buy-and-build stra­te­gies have gained signi­fi­cant trac­tion in M&A globally, with TMT, busi­ness services and health­care sectors as drivers. This is the conclu­sion of the latest buy-and-build inte­gra­tion study by Eight Advi­sory, Europe’s leading tran­sac­tion, restruc­tu­ring and trans­for­ma­tion consultancy.

While the Anglo-Saxon market has tradi­tio­nally domi­na­ted in this area, Germany is now clearly follo­wing suit. In parti­cu­lar, highly frag­men­ted sectors charac­te­ri­zed by strong growth and a large number of compe­ti­tors are popu­lar with inves­tors, who grow a plat­form company via add-on acqui­si­tion and inte­gra­tion of suita­ble other compa­nies. The white­pa­per on buy-and-build inte­gra­tion is based on figu­res from indus­try services provi­der Mergermarket.

Accor­ding to the report, the share of buy-and-build acqui­si­ti­ons, as a percen­tage of the total number of all M&A tran­sac­tions, grew globally from 6% (2012) to 15% (2022) over the past decade. In this context, Germany has been consis­t­ently repre­sen­ted in the list of the most active five count­ries since 2012 and has recor­ded the stron­gest growth rates compared with the leading markets of the USA, the United King­dom and France. While buy-and-build deals accoun­ted for just 5% of total tran­sac­tion volume in 2015, this figure rose to 12% last year.

The growing importance of the buy-and-build stra­tegy for inves­tors in Germany is also reflec­ted in the deve­lo­p­ment of abso­lute figu­res: In recent years, the number of acqui­si­ti­ons rose from 62 (2015) to 282 (2022), an increase of around 355 percent. Marc Niclas and Curt-Oliver Luch­ten­berg, part­ners at Eight Advi­sory in Tran­sac­tion Support and Stra­tegy & Opera­ti­ons, respec­tively, agree, saying, “Given the incre­asing econo­mic uncer­tainty, we believe the buy-and-build stra­tegy will conti­nue to gain trac­tion. This is espe­ci­ally true for inves­tors who want to conti­nue to achieve high returns along­side ambi­tious manage­ment teams, espe­ci­ally in light of fluc­tua­ting tran­sac­tion values.”

TMT, Busi­ness Services and Health & Pharma at the top in Germany

The success of a buy-and-build stra­tegy depends heavily on the sector in which the invest­ment was made. In Germany, the focus of buy-and-build inves­tors last year was parti­cu­larly on TMT (112 tran­sac­tions), Busi­ness Services (40 tran­sac­tions) and Health­care (30 tran­sac­tions). In percen­tage terms, the Busi­ness Services sector was the busiest, accoun­ting for 19% of all tran­sac­tions: almost one in five tran­sac­tions was an add-on as part of a buy-and-build stra­tegy. In the TMT (112 out of 749) and Cons­truc­tion & Manu­fac­tu­ring (25 out of 167) sectors, add-ons accoun­ted for 15 percent of M&A tran­sac­tions each, while in the Chemi­cals & Mate­ri­als sector, add-ons accoun­ted for 9 out of 64 tran­sac­tions, or about 14 percent.
“Howe­ver, Healthcare’s soaring fortu­nes could soon slow down again in Germany if the Fede­ral Minis­ter of Health’s plans to ban the acqui­si­tion of medi­cal care centers by finan­cial inves­tors become reality. This would make buy-and-build, which is espe­ci­ally popu­lar in areas such as dental and ophthal­mo­logy chains, much more diffi­cult or even impos­si­ble,” Niclas said.

Gene­rally less suita­ble for buy-and-build stra­te­gies are complex indus­tries with mostly cycli­cal busi­ness models, inclu­ding mecha­ni­cal engi­nee­ring or utili­ties & energy. Even in the tech indus­try, there are often diffi­cul­ties with inte­gra­tion because compa­nies are very diffe­rent and product appli­ca­ti­ons differ, making it more diffi­cult to align systems.

Rela­tive number of acqui­si­ti­ons by plat­form compa­nies also growing

The incre­asing importance of add-ons for the growth stra­tegy and the profes­sio­na­liza­tion of the inte­gra­tion of acqui­red compa­nies has led to more target compa­nies being acqui­red on average. In 2015, plat­form compa­nies bought an average of 2.9 compa­nies at the global level; this figure increased to 3.4 from 2019 and reached 4.0 in 2022. In Germany, the values deve­lo­ped slightly upward from 2.0 in 2019 to 2.4 compa­nies in 2022. Clear gover­nance prin­ci­ples are essen­tial for the successful inte­gra­tion of an add-on. For the inves­tor, it is important to ensure that the future manage­ment has the neces­sary capa­city to manage, in some cases, seve­ral inte­gra­ti­ons simul­ta­neously. In gene­ral, howe­ver, the number of add-ons shows a slow­down after five tran­sac­tions. Only 15% of compa­nies have purcha­sed more than six add-ons and less than 1% have purcha­sed more than ten.

Curt-Oliver Luch­ten­berg: “The foun­da­tion of a successful stra­tegy is laid with the suita­bi­lity of the plat­form acqui­red first and the compe­tence of the manage­ment. Add to this a compre­hen­sive and easily multi­plia­ble inte­gra­tion play­book and suffi­ci­ent inter­nal and exter­nal expert capa­city, and the chan­ces of achie­ving the desi­red value increase rapidly.”

Rising deal volu­mes in buy-and-build transactions

The published tran­sac­tion volu­mes for buy-and-build deals in Germany show a simi­lar picture: Values have risen steadily for years, apart from a slight dip in the crisis year 2020, and were at a five-year high of almost EUR 14 billion in 2022. Just under 8.5 billion of this was attri­bu­ta­ble to cross-border deals. Over­all, the share of buy-and-build tran­sac­tions in Germany is still quite low at 6.1 percent of the published total M&A tran­sac­tion value — but as this has increased by 5.5 percen­tage points since 2018, the market should conti­nue to grow rapidly in the coming years.

About Eight Advisory
Eight Advi­sory advi­ses entre­pre­neurs, CEOs, inves­tors and banks on tran­sac­tions, restruc­tu­rings and trans­for­ma­ti­ons. The group of 750 employees, inclu­ding 82 part­ners, supports execu­ti­ves in finan­cial and opera­tio­nal decis­­ion-making proces­ses. Eight Advi­sory is an inde­pen­dent Euro­pean group with offices in France, the UK, Belgium, the Nether­lands, Germany and Switz­er­land. As a foun­ding member of Eight Inter­na­tio­nal, the company can draw on a global network of inde­pen­dent part­ners in over 30 count­ries in Europe, America, Asia and Oceania.
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