How are interest rates developing?

When will the war in Ukraine end?

And how deep is Germany sinking into the recession?

Questions that concern business leaders such as investment bankers before the turn of the year - and the answer to which is decisive for when the business with mergers and acquisitions (M&A) gets going again.

According to Refinitiv data, the transaction volume with German companies fell by a good third at the end of the year, to the lowest value since 2017. The consultants have also almost written off the coming first quarter or even the first half of 2023, and there is not enough movement for that backstage.

They hope for the second half of the year.

Investment bankers report that the main lack at the moment is financing.

A billion euros can be raised, but the banks have recently been less and less daring to take on larger loans, says Christopher Droege.

"For the financing markets to open again, the volatility surrounding interest rates must disappear," Tibor Kossa puts it in a nutshell.

Kossa and Droege jointly manage the M&A business of the US investment bank Goldman Sachs in Germany.

A first step in this direction would be that inflation should not increase any further.

Rainer Langel from the investment bank Macquarie does not expect the M&A market to recover in the spring either.

“In the second half of the year, we expect an upturn.” He hopes that the credit markets will then see things more clearly again.

Financial investors have to invest

Financial investors in particular are suffering from the reluctance of the lending banks.

Nevertheless, they were involved in every fifth company purchase or sale in Germany this year.

They typically finance about half of an acquisition on credit to boost yields.

Martin Suter of the investment bank Rothschild believes that their chances with the banks will improve in the second half of the year.

"There is still a lot of capital with investment pressure," says Suter, co-head of investment banking for the German-speaking region.

The equity funds that private equity firms have raised from their investors are in many cases larger than ever.

Not everyone can or wants to wait until the loans flow again, and are therefore tinkering with alternative strategies.

"Private equity firms are considering whether to fund transactions up to a single-digit billion volume entirely with equity, with the option of refinancing them (with loans) after two years," says Langel.

Christian Ollig, who is responsible for business in Germany, Austria and Switzerland for the US investor KKR, confirms: "Basically, KKR has the flexibility to only make new investments with equity." Kai Tschöke, Suter's colleague at Rothschild, assumes that Financial investors also target listed companies.

KKR manager Ollig is not worried that financial investors will not be able to sell the companies from their portfolio again.

"There is reason for optimism - despite the uncertainty.

Many medium-sized companies want to grow through acquisitions.” Tschöke believes that large companies should also be much more actively looking around in 2023.

"We therefore expect more transactions in the classic German industrial sectors."

But Berthold Fürst, co-head of Deutsche Bank's global M&A business, is not sure who is going to buy where on both sides of the Atlantic: "The sharp fall in the euro and pound sterling should encourage takeovers of European companies by US companies," he says.

“On the other hand, given the geopolitical uncertainties and the weak economy on the continent, Europeans could also look for opportunities in the USA.

Already in the current year, 40 percent of the takeover targets of German companies were in America.