Sales frenzy in the German startup scene? At least that is the conclusion of a report by the auditing company Ernst & Young. According to this, the number of exits, mergers and acquisitions increased by 90 percent in the last year compared to 2020.
What’s it all about? The most important facts at a glance.
According to the study, 171 M&A deals were closed in the German start-up scene last year. By far the two biggest acquisitions were SAP’s January 2021 acquisition of Berlin-based enterprise software provider Signavio and the purchase of Berlin-based analytics startup Adjust by the US-listed marketing company. Applovin bag for 830 million euros.
Additionally, the startup scene saw four IPOs in 2021: Auto1, About You, Sono Motors, and Linus Digital Finance. That’s a lot, according to the report, because startups have so far preferred classic exits to IPOs. “In view of highly liquid markets and investor appetite for digital and technology-based business models, an attractive IPO environment is emerging in Germany,” say EY experts.
In addition, the issue of space has gained importance. There were three Startup Spac offerings in 2021: Lilium, Boxine, and Hometogo.
The market is full of money. That’s what the report says. And that should remain the case in 2022, despite all the current crises: “Favorable conditions for acquisition financing and constant pressure to innovate and digitize should further drive M&A activities,” expects Dr. Thomas Prüver, Partner at EY.
In the vast majority of cases, large corporations enter into merger and acquisition deals. More than two-thirds of the transactions, or 68 percent of the 171 deals, came from foreign investors. That is 15 percent more than in 2020. However, German investors were also more active than in the previous year. Most of the investors are in the US A total of 52 acquisitions of German startups by US companies were recorded last year. That was 38 more than in the previous year. 49 German startups were bought by companies from European countries, only three by investors from Asia.
technology and software. This is the favourite. The largest exit of 2021 took place with Signavio in the software and analytics segment. And this was also the area where the most deals were made: software startups were bought in 43 percent of all M&A deals. Like the previous year, it is followed by e-commerce and advertising and media companies, each with 10 percent. “At home and abroad, German technology expertise is in special demand. The digital transformation of the economy makes young tech companies highly sought after transaction targets,” says Prüver. Mobility has recently come into focus. A well-known example of this is Tier Mobility’s acquisition of Nextbike.
“Germany has built a good reputation as a start-up location, and the visibility of the ecosystem has improved significantly in recent years,” says EY Partner Prüver. “Over the past year, exit options have improved tremendously, whether through an IPO or a sale to a financial or strategic investor. This means that more fresh money flowed into the German startup ecosystem, which can now be invested.”
The scene has taken a big leap in this country, which is also shown in the significantly higher number of German unicorns. This went from six in 2020 to 25 German unicorns in 2021. In terms of funding, a record investment was achieved last year. There were not only many, but also exorbitantly high returns.
Much of the money has retreated after uncertainty was too high for many investors in the first year of the pandemic. “After the reluctance in 2020, investors were under great pressure to invest and their coffers were full,” says Prüver. “At the same time, intense competition for attractive target companies has broken out, which is driving up valuations. Attractiveness of alternative investment opportunities further increased.”
The start-up experts at Wirtschaftsprüfung expect a lot of money to flow into the start-up scene in 2022 as well. The number of venture capitalists is growing. “Opportunities for promising startups to raise growth capital have never been been better than today”, concludes Prüver.