Germany is selling off its companies. The numbers of a dire crisis

Foreign takeovers of UK-listed companies have been a growing concern in the City of London in recent years, and now the same phenomenon is spreading across Europe, particularly in Germany.

German companies appear to have become a prime target for international buyers.

According to data from 7Square’s Tim Winkel, the volume of foreign acquisitions of German companies reached $47.2 billion in 2024 alone, up 70% of the total value of inbound acquisitions in 2020. Highlights include UAE oil company Adnoc’s bid for chemicals giant Covestro and Danish group DSV’s acquisition of Deutsche Bahn’s logistics division. These two deals alone are worth around $32 billion.

Despite the hype surrounding these megadeals, what is even more worrying is the interest shown by foreign investors in more sensitive sectors such as banking. A notable example is the case of UniCredit, which has expressed interest in Commerzbank, a move that has raised political concerns. Although this deal has not yet materialized, it underscores the growing attention that German companies are receiving from potential foreign buyers.

While inbound acquisitions are growing strongly, outbound acquisitions, i.e. deals involving German companies abroad, are in sharp decline. In 2024, the volume of outbound acquisitions shrank to $11 billion, a drop of two-thirds compared to 2020. One factor contributing to this decline is the scarcity of German private equity funds. Financial investors, in fact, accounted for more than a quarter of inbound acquisitions, highlighting a trend in which foreign capital is playing a predominant role in the purchase of German companies.

This trend largely reflects Germany’s economic weakness. The country recently downgraded its economic forecast for 2024, predicting a second consecutive year of economic contraction. High energy costs and stagnant demand have had a significant impact on German companies, especially those in the industrial sector. The economic slump has forced companies like Covestro to look for buyers with more financial resources, while giants like BASF are considering selling off some of their business units, a sign that this trend could intensify further.

Another factor that makes German companies vulnerable is their exposure to low-growth sectors, such as the automotive industry, while there is a lack of large companies in the technology or pharmaceutical sectors, which have driven the growth of many global giants in recent years.

Globally, German companies are losing relevance. The banking sector, in particular, has been hit hard. Deutsche Bank, which in 2013 was the tenth largest bank in the world by assets, now ranks twenty-sixth. In terms of market value, German companies now account for just 2% of the MSCI All Countries Index, down a third from a decade ago.

While Germany is not as bad as the United Kingdom, whose share in the index has fallen by more than half over the same period, it is still worse than other European economies. Countries such as Denmark and the Netherlands have seen their companies’ value rise thanks to giants such as Novo Nordisk and ASML.

Another indicator of the relative decline of German companies is the ratio of the DAX, the index of the largest companies listed in Germany, to the S&P 500, the benchmark index for the US market. Before the pandemic, the DAX was trading at a 20% discount to the S&P 500, but today that discount has widened to 40%. This wide gap reflects not only the weakness of the German economy, but also the growing interest of global investors in acquisition opportunities at attractive prices.

Original article published on Money.it Italy 2024-10-24 07:00:00. Original title: La Germania mette in svendita le sue aziende. Tutti i numeri di una crisi nera