Growing prominence of creative businesses
Germany, Austria and Switzerland represent a huge consumer market with a combined population of c100 million, blessed with high levels of Internet and mobile technology penetration. What is perhaps surprising is that the region has historically been responsible for a disproportionately small volume of M&A activity involving creative businesses. However, M&A activity across the region suggests this relative lack of activity is gradually changing.
Germany has long been described as the economic backbone of Europe, in part due to its large and well-educated workforce, its quality of industry and manufacturing. What has become evident is that the broader DACH region has developed into a market and environment in which more creative-led businesses are able to rapidly grow and make significant economic contributions. According to government sources, the broadly defined creative industries in Germany now comprise over 250,000 companies and employ over 1.6 million people. It estimates, that in 2016, those creative industries contributed around €154 billion revenue to the economy.
Rising M&A activity of creative-led businesses
In contrast to the decline in M&A activity in most European regions in 2017, the DACH countries combined experienced a 5% increase in activity. Moreover, M&A transactions involving SI Partners’ more focused definition of marcoms and creative-led technology and consultancy businesses were up a significant 30% in 2017 and well ahead of the 9% average growth observed since 2010.
Germany accounted for 77% of DACH-based acquisitions of marcoms and creative-led technology and consultancy businesses in 2017, with Swiss-based companies accounting for around 17% of the volume. The leading marcoms holding companies have been long-term investors in DACH regions and consequently have picked up relatively few DACH-based investment opportunities of late. Instead, DACH-based marcoms groups, strategic buyers from other sectors and geographies and financial investors have all become significant investors in the DACH-based creative sectors.
Scale and other drivers represent ongoing opportunity
There is a wealth of such creative led businesses across the region, many of which remain independent of holding companies, financial investors or other parent organisations. Many of these would really benefit from working with a culturally aligned growth partner to help them scale to the next significant horizon. The universe of creative-led businesses is now receiving considerable attention and support and will likely grow even further. The German government established the Digital Hub Initiative in 2016, seeking to link five of the most innovative regions in the country in order realise supportive synergies of digital and creative businesses. This was expanded to include a further seven regions the following year, all providing a supportive environment to innovative businesses.
Private equity and venture capital funds have also been relatively under-represented investors although this too appears to be changing. Traditionally shy of this form of financial support, both Germany and Austria remain relatively uninvested compared the average across Europe. Interestingly, Switzerland has enjoyed a significantly higher than average rate of VC investment and perhaps partly explains the disproportionate volume of M&A activity across the creative-led sectors. As private equity firms learn how to work with creative founders and owners (as they have already done in other regions) and earlier invested creative companies come due for onward sale, transactions involving this type of investor will also be more frequently observed.
Germany, Switzerland and Austria record some of the highest GDP per capita in Europe and are forecast to continue growing well into 2019. Given the robust economic fundamentals and the overall size of the market, it makes sense that so many strategic operators from outside the region are looking to acquire or build a business in these industries. SI Partners’ recent Path to Growth report, highlights that Germany is the third most popular target for businesses looking to expand in Europe (tied with Greater China and France).
The three DACH countries combine to form a creative market offering great potential to those young creative-led companies looking to attain meaningful scale. Investor communities from other geographies and sectors will continue to explore and recognise the value of the DACH creative universe. Given the numerous opportunities on offer to investors targeting or already operating in the DACH region, it is inevitable that the next few years will see continued energetic M&A activity.
