While the market has been shaped by a booming economy and rapid  euphoriain recent years, other drivers of mergers and acquisitions will be at the forefront in the future.

Decline in profits, subdued economic prospects and the need for larger corporate units with a global footprint force many medium-sized companies to sell to a larger or financially strong partner. But also for owners of profitable, healthy companies, the window for a successful company sale opens up again in 2021. The acquisition of German Hidden Champions is at the top of the list of priorities for foreign strategists – particularly from the USA and Asia – as well as for financial investors. Double-digit EBITDA multipliers are still paid for companies with earnings margins of 15% or more.

The private equity industry has not forgotten that the most successful investments were made immediately after the financial and economic crisis of 2008/09.

The acquisition of German Hidden Champions is at the top of the list of priorities for foreign strategists and financial investors.

The acquisition of German Hidden Champions is at the top of the list of priorities for foreign strategists and financial investors

German Mid-Cap Segment: plethora of deals to be seen
The German Mid-Cap Segment in particular is expected to show brisk activity in the coming 18 months. In M&A processes, we are likely to see smaller bidders and more cautious buying intentions closely scrutinizing current trading and COVID-19’s impact on sales figures and hardly pushing for a quick close. This applies in particular to strategic buyers for whom the responsible management teams are strongly aware of their duty of care. In due diligence, you will examine the target companies for the presence of any risks and obligations even more thoroughly than in the past.

Conclusion
Earn-out and MAC clauses will increasingly be used in sales contracts to bridge valuation differences and hedge risks. Another option for securing the parties is Warranty & Indemnity (W&I) insurance, which could be used even more frequently in the future-and not only if private equity is on the seller’s side. However, in view of the corona crisis, insurers will have to contend with a sharply increasing number of claims in the future, which in turn will have an impact on their risk assessment. In the medium term, therefore, increasing W&I premiums and stricter requirements on the buyer’s due diligence are to be expected.