5 minute read 9 Jun 2021
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How optimism fuels M&A appetite among German companies

By Constantin Gall

EY Europe West Strategy and Transactions Managing Partner and Automotive Industry Practice Leader

Decades of experience in transactions, corporate finance, strategy and international management. Trusted advisor. Transformation enthusiast. Passionate driver who likes traveling.

5 minute read 9 Jun 2021

Confident in their performance during the pandemic, German executives focus corporate strategy and M&A on driving regional growth.

In brief
  • German executives feel as if they outperformed their competitors throughout the pandemic and are optimistic about a rapid rebound.
  • Ninety-two percent of German companies expect growth opportunities to come from within the region over the next three years.
  • M&A activity will focus on supply chain resilience and bolstering technology, talent and innovation.

After a year of exceptional crisis, German executives are surprisingly bullish about the road ahead, according to the latest EY Global Capital Confidence Barometer (pdf). They believe they outperformed their competitors during the COVID-19 pandemic across a wide range of metrics — operational stability; identifying, evaluating and responding to emerging risks; innovating new products and services; workforce management; and financial performance.

EY CCB23 Germany perceptions of company pandemic performance vs competitors

Confidence in their performance during the crisis is driving German executives’ optimism regarding their performance going forward. More than half (56%) of those surveyed expect their revenues to be restored to pre-pandemic levels sometime this year (vs. 46% of global respondents). Another quarter (24%) expect a recovery by 2022 at the latest.

However, German companies acknowledge that profitability may return more slowly. A quarter (26%) anticipate a return to pre-pandemic profit levels sometime this year, whereas 4 in 10 believe it may take until 2022.

Two predominant drivers may be propelling German optimism. From a business perspective, German companies have taken advantage during the current crisis of lessons learned from the country’s post-World War II history and more recently from the global financial crisis. As a result, German companies traditionally operate lean. Even when business is booming, companies keep a keen eye on costs. These factors enabled German companies to slow down and regroup rather than come to a grinding halt. They relied on cash reserves to carry them through and maintained confidence that business put on hold as a result of the pandemic would return once the world began opening up again. From a political perspective, the German government’s handling of the first-wave lockdown has allowed companies to rebound faster now. Taken together, German companies believe they are well-positioned to accelerate growth, seize opportunities and ultimately thrive in a post-pandemic world.

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Chapter # 1

German executives expect growth to come from within the region

Execs expect to help reshape value chains, addressing gaps in existing EU globalization models.

An overwhelming majority (92%) will be looking for growth opportunities from within Europe. In addition to rising geopolitical tensions among global powers, the pandemic opened glaring gaps in globalization and supply chain models. German companies expect these factors to motivate the European Union (EU) to accelerate its plans to build a post-COVID-19 Europe that is more open, strategic and autonomous. As Europe’s largest and most centrally located economy, the country is expected by German companies to play a key role in the reshaping of value chains.

EY CCB23 Germany regional growth opportunities expectations

As part of an export-driven, largely high-end manufacturing economy, German companies tend to rely on globalized supply chains that operate on just-in-time delivery models. In addition to EU efforts to balance the need for strategic supply resilience while staying competitive and open to trade, German companies are re-evaluating their strategies and portfolios. Four in five German executives say their company undertook a strategic or portfolio review within the last year, and while the pandemic was a driver for some, two-thirds say their plans for a review were unrelated to the crisis.

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Chapter # 2

Optimism and securing supply chains fuel robust M&A appetite

German companies see opportunities to excel through M&A and divestment.

Optimism among German executives about the opportunities ahead, combined with ruthless decision-making during their strategic and portfolio reviews, have 64% saying they intend to pursue M&A in the next 12 months.

EY CCB23 Germany expectations to actively pursue mergers and acquisitions

As a leader in high-tech manufacturing, Germany sits at the center of digitization and automation. Given falling valuations of takeover candidates, German executives anticipate a significant increase in M&A activity in the coming months.

German executives aren’t the only ones betting on Germany, it seems. Global investors seem equally bullish on Germany’s position to benefit from a rapid recovery. For the first time, Germany is the top investment destination among global survey respondents.

Given the country’s reliance on global supply chains, German executives unsurprisingly cite securing supply chain and responding to regulatory tariffs and trade shifts as the top strategic driver for their M&A ambitions. Other targets include assets that will enable them to move into adjacent business activity, and acquiring technology, talent, innovation or new production capabilities.

In addition to M&A, German companies will be looking at divestment opportunities as an outflow from their strategic and portfolio reviews. German companies will be looking to sell underperforming assets to improve profit margins.

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Chapter # 3

Geopolitical tensions push executives to see beyond buy or build

German companies will be focusing on regional ecosystems.

Although German executives are mostly optimistic, they understand that their intentions for an accelerated rebound relies on an orderly vaccination rollout throughout the world so that businesses and economies can arrive at a new normal.

Interestingly, however, the continuation of the pandemic is not their most pressing concern. German executives believe the greatest risks to their own businesses are macroeconomic performance and geopolitical tensions. As a result, German companies will be looking toward reshoring of supply chains and strengthening regional ecosystems as key imperatives for accelerated growth in the years ahead.

German companies understand the idea of ecosystems and the importance of partnerships, but remain cautious about participating in ecosystems. Historically, they have preferred to acquire and lead.

Responses in the EY Global Capital Confidence Barometer seem to bear this out. Only 20% of German executives who participated in the survey elected to answer the question relating to ecosystems. Of those, 90% say they need to define their future role in the ecosystem more clearly, while 73% say they are more open to partnering with the competition to create new ecosystems. However, 84% believe they need to control all key elements in the ecosystem, and 97% say they need to build new skills and processes to operate effectively in their ecosystem.

As German companies prepare for a post-pandemic world, they’ll want to think more broadly about developing and engaging in collaborative ecosystems and partnerships that can help them excel in the areas outside of their core competencies without having to build or buy.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Constantin Gall

EY Europe West Strategy and Transactions Managing Partner and Automotive Industry Practice Leader

Decades of experience in transactions, corporate finance, strategy and international management. Trusted advisor. Transformation enthusiast. Passionate driver who likes traveling.