Dr. Henrik Fastrich, Managing and Founding Partner of Orlando Management AG, Frank Gunther, Founder and Managing Director of One Square Advisors, Dr. Max Mayer-Eming, Managing Director of Macquarie Capital (Europe) Limited, and Martin Schwarzer, Partner and Co-head of the German Mergers & Acquisition group of PwC AG discussed the current restructuring and distressed M&A situation in the German market together with moderator Dr. Matthias Kampshoff of McDermott Will & Emery.
Though the German economy is still strong and capital is still easily accessible, the panellists agreed that the market for restructuring and distressed M&A activity still does not present many opportunities. The number of corporations that had to file for insolvency has reached another relative low with only 21,700 cases (compared to 34,040 cases in 2006). Nevertheless, there have been a number of major and quite interesting cases, such as AirBerlin, Solarworld, Unister and Rickmers in which some of the panellists have played a significant role.
After discussing a general overview of the market, the panel focused on the transformation process in the automotive industry. This industry is currently facing a number of challenges, such as the diesel scandal, e-mobility, autonomous driving and car sharing. These challenges will lead to high development costs, a shift in technology and, from a longterm perspective, a reduced number of sold cars. The panellists agreed that whereas German OEMs and large Tier 1 suppliers may be well-prepared for these challenges, medium and small-sized suppliers will be facing more difficulties. This is mainly driven by an anticipated change in the product mix and shift from combustion engines, powertrains, gear boxes, and casting parts, etc., to electric engines and respective equipment. However, the panellists believe that such a transformation process will take longer than expected. Therefore, they do not think it will trigger a major restructuring wave in the short-term. Yet, the automotive industry is perceived as one of the fields that may yield the more interesting distressed M&A opportunities in the upcoming years.
The next round of discussion was devoted to another crucial industry: the German retail sector. Again, it was widely held that retail businesses in Germany are being threatened by a number of significant changes and challenges. Recently, this has had a major impact on German fashion retailers. The market has seen insolvencies of large companies such as Steilmann, Wohrl and SinnLeffers as well as a number of mid-caps, such as Rene Lezard, Basler, St. Emile, Madonna, and Pohland. In addition, there are a number of local retailers— often long-established with great reputations—that may have to close down their businesses for lack of a profitable business model for the future. The panellists agreed this is mainly due to both an increased market share of online players, such as Amazon and Zalando, and the growth of fast fashion and low budget retailers, such as Primark and Zara. Such players have created a highly competitive market environment and an urgent need to adapt one’s business model. Given the comparably small size of German fashion retailers and producers, the required change in their business models is often either not feasible in structural terms or cannot be sustained financially. The panellists agreed that any investment in a distressed fashion retailer or producer would be a challenge under such market conditions.
The panellists, moreover, discussed whether this trend should also be expected for other retail sectors, such as do-it-yourself markets and furniture sellers. They came to the conclusion that other retail sectors also need to prepare for the new competition and business models as there is a clear trend of increasing influence of online businesses in those sectors as well. However, the panellists strongly believe that the more complex and expensive the logistics involved are, the more difficult it will be for online businesses to gain a significant market share. Thus, other retail sectors may be better protected against online competition. In turn, there may well be interesting investment opportunities coming from those.