Merck KGaA (MRK) yesterday agreed to acquire medical equipment manufacturer Sigma-Aldrich Corp. (SIAL) for more than $16 billion, in what would be the biggest acquisition in its 346-year history. Hours earlier, Siemens AG (SIE) said it would buy Dresser-Rand Group Inc. (DRC), a provider of energy equipment based in Houston, for $7.5 billion. In two deals last week, SAP AG (SAP) agreed to buy Concur Technologies Inc. (CNQR) for $7.4 billion, and ZF Friedrichshafen AG bid $11.7 billion for TRW Automotive Holdings Corp. (TRW)
So far this year, German firms have announced about $65 billion in U.S. deals -- almost 18 times the $3.7 billion in the same
period of 2013 -- eclipsing the sixfold increase in U.S. acquisitions by European companies overall. Hamstrung by sanctions on Russia and unrest in the Middle East, the corporate giants of Europe’s largest economy are using takeovers to reshape strategies and buy into a U.S. recovery that’s outpacing the rest of the developed world.
“Uncertainty about the long-term economic outlook for Europe is motivating companies to seek locations abroad for future investments, and North America is still one of the key targets for that,” said Christoph Kaserer, a professor and head of the department of financial management and capital markets at Munich’s Technische Universitaet. “We’ve already seen a number of such deals and there’s more to come for sure.”
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Shale-Gas Boom
Merck, based in Darmstadt, is purchasing St. Louis-based Sigma-Aldrich to expand in chemicals used in research labs and pharmaceutical manufacturing and reduce its dependence on drug development. The acquisition will accelerate the family-controlled company’s shift away from developing pharmaceuticals, at a time when its Serono biotechnology business has struggled to create new products.Munich-based Siemens, which is simultaneously selling its 50 percent stake in a household-appliances joint venture with Robert Bosch GmbH, is buying Dresser-Rand to participate in the shale-gas boom that’s driving the U.S. recovery, and is yet to materialize in Europe.
Under European and U.S. sanctions imposed following Russian President Vladimir Putin’s annexation of Crimea in March, companies like Siemens are barred from selling advanced technology for oil extraction to Russia, once one of the industry’s most important markets.
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Economic Growth
“Global economic growth is coming back and companies are seeking to participate with takeovers as well as by readjusting their structure,” said Tereza Tykvova, a professor and the head of corporate finance at the University of Hohenheim in Stuttgart. Turmoil in emerging markets is prompting companies to “increasingly stick to established markets such as the U.S., where an improved outlook for economic growth adds to the attractiveness of the market.”U.S. economic growth is expected to be about 2.1 percent this year, according to the Organisation for Economic Co-operation and Development, compared with 0.8 percent in the euro area. Flouting concerns about a jobless recovery, the U.S. labor market is picking up, too. Payrolls climbed in 35 states in August, improvements that are prompting debate among Federal Reserve officials about whether to increase near-zero interest rates.
Low investment yields and cheap borrowing rates are spurring the flurry of mergers and acquisitions activity.
“Interest rates can’t get much lower,” said Ulrich Huwald, an analyst at Warburg Research in Hamburg. “It’s time to make a move.”
To be sure, the past record of German mega-deals in the U.S. is mixed. Daimler AG’s $43 billion merger with Chrysler Corp. in 1998 ended with it selling of the remnants of the U.S. automaker almost a decade later for $7.5 billion. More recently, Deutsche Telekom AG has sought for years to exit its T-Mobile US Inc. (TMUS) mobile venture, so far without success.
In being focused on exposure to economic growth and adding new technologies, the current German deals differ from the year’s other major takeover trend -- the run of so-called inversion deals by U.S. companies. In those situations, firms including AbbVie Inc. (ABBV) and Medtronic Inc. (MDT) have pursued European targets in part to re-domicile abroad, lowering the tax they pay to Washington.
Autonomous Driving
ZF Friedrichshafen is buying TRW to take the No. 2 spot in the global car-parts market. The deal, the biggest in its history, will combine ZF’s transmissions with TRW’s technology, from air bags to collision sensors, that keeps drivers secure and helps them avoid crashes as the industry moves increasingly toward autonomous driving.The allure of Silicon Valley is behind SAP and Infineon’s recent acquisitions. Concur operates smartphone-friendly expense systems for corporate travel, for which it has partnered with popular services like Uber and Airbnb.
International Rectifier offers Infineon semiconductors that help manage power flows in cars and aircraft -- a potential growth industry as more electronics are jammed in. When the deal was announced, Infineon CEO Reinhard Ploss was clear about its appeal. “It’s very important for us to be in the U.S. and close to the highly innovative region of California,” he said.
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