The German deal market held up pretty well in 2022, and a number of sponsors remained bullish on the market, despite woeful predictions of a devastating impact from rising energy prices. Going into 2023, with the latest wave of uncertainty sweeping the banking industry, lenders say the year ahead could prove more challenging.
Jens Bauer, managing director at Permira Credit, says that in Germany Permira saw roughly the same amount of deals in 2022 as in 2021, with a similar split of about 55 percent being done by funds and the remainder by the banks.
“What is interesting is that about 40 percent of the deals last year were add-on financings, compared to just under 30 percent in 2021, and that is something we continue to see in 2023,” he says. “New deal activity is certainly down but portfolio companies continue to engage in add-on M&A activity and are still being supported by shareholders.”
Bauer is cautious about 2023, predicting “a slightly slower year in the DACH region” is on the cards. “Throughout last year the economy held up better than expected, and we see that in our portfolio and in the various macroeconomic indicators,” he says. “However, we now see it is harder for people to agree on price as valuations are under pressure, and it is also harder to price risk given what we have seen in the banking sector.”
This is especially true, he says, in the large-cap space, where banks find it harder to underwrite large deals and often require a lot of flexibility.
That view is backed by Lucas Pech, director at Golding Capital Partners, who agrees that activity has so far held up – and sees potential for club deals in the large-cap sector as banks retrench.
He says: “Certainly the M&A market is slower right now as a result of price discovery issues, but we see activity by private equity firms doing add-ons that still create a financing opportunity for credit funds. Across our portfolio we have seen deal activity slowing somewhat, but overall relatively stable.”
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