Germany is one of the world’s top destinations for foreign capital. A new KPMG analysis studies the inflow of foreign direct investment and attests the potential for large increases.
Foreign capital is as active as never before in Germany. With 1,483 M&A and greenfield projects, Germany ranked third as the world’s most important destination for foreign capital in 2014. Yet, as KPMG's Business Destination Germany analysis reveals, the influx of capital could rise further still.
“It is well known that Germany is one of the world’s largest exporters. But it is also an ideal place for capital investment,” says Andreas Glunz, Managing Partner International Business at KPMG AG Wirtschaftsprüfungsgesellschaft. Industries in transition, family-owned businesses seeking successors, geographic advantages and regional imbalances offer a wide range of opportunities across all categories.
Compared to 2013, total deal value almost doubled to a record high of USD 62.9 billion spent on German assets in 2014. A trend that continues. Year-on-year, the number of M&A transactions increased and again rose in the first six months of 2015.
Most investors are from the US. The traditionally strong relationship was apparently not affected by the NSA spy scandal. “With the dollar being much stronger now, I would expect to see even more US acquisitions and greenfield projects in Germany. It is possible that potential buyers are waiting for an even more favourable exchange rate once the Fed starts raising the interest rates,” according to Andreas Glunz.
Viewed over the past five years, Switzerland is a distant second in terms of the number of M&A and greenfield projects, with the UK following closely behind. France and the Netherlands rank fourth and sixth, respectively. China comes in fifth, thanks largely to a steady rise in M&A deals.
Notably, Chinese investments focus on traditional German sectors such as machinery, automotive and other heavy industry. At least during the first six months in 2015, there was no sign of a possible economic crisis in China, or that – if real – it would lead to a decline in direct investments in Germany.
In addition, Chinese acquisitions include a range of German Mittelstand (small and medium-sized) companies that are often among the world leaders in their market. Glunz sees those companies as the perfect target for Chinese investments. “They possess very valuable skills and knowledge, and efficiency the large Chinese entities are looking for. However, many of those German companies are family-owned and are reluctant to sell to foreign investors.” However, the lack of successors at some family businesses could conceivably provide opportunities to gain a foothold, Glunz suggests.
A different window of opportunity is presented by the transition to "Industry 4.0" that necessitates investments. This is a chance for foreign investors with spare cash to become part of "Made in Germany".
In general, the German manufacturing industry is highly attractive for foreign investors. Half of the top ten targeted industries for acquisitions since 2010 belong to this group. Trending sectors include real estate and start-ups.
The KPMG experts conclude that Germany will see even more capital flowing in. “Its central location in Europe, its strong and growing role within the European Union, the increase in the economic power of its eastern neighbours, its top-notch research institutions, and the stable political and economic environment should allow for a further increase in foreign direct investment,” says Glunz.
However, he warns, “Global investors looking at Germany need to fully understand the competitive environment they are operating in. Nevertheless, the well-prepared will be rewarded with opportunities hard to find elsewhere.”
The “Business Destination Germany” analysis can be downloaded by clicking on this link.
Editor: Matthias Hiller