German investors took part in a record level of M&A deals outside their borders in 2017, securing 394 outbound deals worth US$39 billion over the year. The US attracted the majority of this activity, both by value and volume, with 77 announced deals worth US$11.6 billion targeting US firms marking a record annual volume.

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But in the first quarter of 2018, German dealmaking into the US paused for breath, with only five deals announced during the quarter.

One of the five was SAP’s US$2.2 billion planned acquisition of Nasdaq-listed software company Callidus. For SAP, Europe’s largest software company, the Callidus acquisition was its largest deal for almost four years and demonstrates Germany’s ongoing interest in US targets, despite a lower deal volume recorded in the first quarter of the year.

Profit over politics

The record 2017 for German dealmaking in the US took place against a backdrop of cooling relations between the two countries at a political level.

US president Donald Trump has openly expressed his dissatisfaction with the United States’ trade deficit with Germany, and has unsettled German politicians with insinuations that the US will not meet its NATO obligations on the grounds that the other members of the pact are not spending enough on defense. The US president’s plans to impose tariffs on EU aluminium and steel has placed further strain on relations and heightened fears of a creeping trade war.

US-German politics has had an impact on business, with German executives concerned about the unpredictability of US policy under Trump’s leadership. A 2017 survey of 1,900 executives leading the US subsidiaries of German companies by the German American Chambers of Commerce (GACC) showed that more than a quarter of respondents (28%) expected the Trump administration to have a negative impact on their business. Despite these fears, however, only 1% of those polled by GACC said they would be reducing their strategic focus on the US.

US attraction endures

Despite political headwinds, it is clear that US assets offer unique opportunities to German businesses looking to secure long-term growth. According to the Federal Statistics office of Germany, the US remains Germany’s largest export market, with €111.5 billion of exports recorded in 2017.

The growth of the US economy relative to other countries, low interest rates, German appetite to invest in technology and proximity to key customers are among the factors that have made the US the obvious target for German companies to expand into once they have maximized growth domestically.

Consumer group Henkel, for example, generates around a quarter of its sales in the US, and has actively used M&A to grow its US footprint. The group acquired Zotos International, the US professional haircare unit of Japanese group Shiseido, for US$485 million in October last year. Henkel was also behind the third-largest German deal in the US in 2017, carving out Darex Packaging Technologies for more than US$1 billion from parent company GCP Technologies.

SAP’s $2.2 billion purchase of Callidus, the largest German deal in the US over the last 12 months, demonstrates the value that German companies see in US technology companies. The Callidus deal has enabled SAP to strengthen its enterprise cloud computing offering and build a software product that can serve customers across the supply chain. SAP also paid US$350 million for US online customer identity software company Gigya to add to its ecommerce platform.

Outlook positive

After a busy 2017, there are indications that German deal activity in the US is slowing, and there are concerns about the effect that tariffs could have on German exports and supply chains in the US.

But the steady economic outlook in the US and the opportunities that it continues to offer German companies to grow sales and acquire technology mean that, despite these headwinds, the US remains a market that no German dealmaker can afford to ignore.