German Companies Develop Appetite for Overseas Acquisitions

They may have been the targets of acquisition by foreign buyers in recent years, but German companies are now increasingly looking to turn the tide.

Last year German shoemaker Adidas bought rival sports shoe firm Reebok for $3.8 billion (3.2 billion euros) and Deutsche Post acquired British logistics firm Exel for $5.5 billion.

In addition, German chemicals giant BASF is courting Engelhard, an American catalyst-maker, with a $4.9 billion bid, and chemical company Linde is eyeing British firm BOC, for which it's ready to shell out 11 billion euros.

Germany's shopping spree in North America, in particular, has sparked a lot of attention.

Focusing on core business

Frank Lutz, an investment banking expert at the Deutsche Bank, said the main reason German companies had been relatively uninvolved in mergers and acquisitions in the past was that they had instead focused too greatly on their core businesses.

"That strengthened core business fields and the balance sheets," said Lutz, adding that several German companies had also disengaged themselves from sectors that didn't belong to their main business.

"Thus there was much more money at their disposal and the companies were once again able to make big purchases and strengthen their positions," Lutz explained. "And it's almost logical for European companies to look towards the biggest market of the world -- the US."

US market more unrestricted

Thorsten Widow of Gavin Anderson, a business consultancy, pointed out that companies in Europe were often constrained at home by regulations governing takeovers and mergers.

"For one, expansion plans in Germany are very quickly subject to anti-trust legislation without the companies being able to pocket the strategic added profit they're hoping for," Widow said.

"Secondly, mergers and takeovers are always linked to establishing market positions and to profit synergies. And this is much easier to achieve in countries such as the US where potential buyers are still not represented."

The 30 companies listed on Germany's DAX share index alone have 120 billion euros in their coffers which they can spend on acquisitions. That's a third more than in 2002.

Frank Lutz of Deutsche Bank said that, in addition to strategic factors, other conditions work in companies' favor.

"The interest rate at the moment is still very favorable, interest is relatively low," Lutz said. "The euro is very strong, the share markets are doing very well. So there are a lot of possibilities to acquire the necessary capital. And all these factors contribute to the fact that acquisitions and mergers have increased greatly."

US market more important for Europeans

Though some European companies have managed to get a foothold in the surging Asian market, Lutz stressed that American companies simply had a different value for European bosses.

"If a company today wants to grow via a fusion or a takeover, then there are very few or practically none in Asia that would fit the bill," said Lutz. "In contrast, there are huge companies in the US, and here a firm can make tremendous progress with a transaction."