analysis
Something is happening in German naval shipbuilding. The war in Ukraine and the planned sale of the Thyssenkrupp subsidiary TKMS make consolidation in the industry likely.
This visit was highly symbolic: Even before Defense Minister Boris Pistorius arrived in Kiel for the official start of construction of a new series of submarines, speculation had increased about a consolidation in German naval shipbuilding. On site at Thyssenkrupp Marine Systems (TKMS), the SPD politician then confirmed the federal government’s interest in joining the group’s marine subsidiary.
“There is no question that we want to,” said Pistorius. However, the considerations have not yet been completed and a decision will take at least until the end of the year. The “Handelsblatt” had previously reported that the federal government was considering acquiring a stake of 20 percent or more in the naval shipyard.
The employee side had also recently campaigned for state entry. “We need the state as an anchor investor and a strong customer,” the head of IG Metall Coast, Daniel Friedrich, demanded last week.
Industry leader is for sale
The “turning point” proclaimed by Chancellor Olaf Scholz in the wake of the war in Ukraine now seems to be arriving in German naval shipbuilding.
TKMS, whose independence the parent company has been working on for some time, is considered the core of a consolidation in the industry. “An independent Marine Systems is a better way forward: for Thyssenkrupp, TKMS, for our customers, for Berlin and therefore for Germany,” company boss Oliver Burkhard recently explained.
According to its own information, the industry leader is the world leader in the construction of conventional submarines. TKMS also builds frigates, corvettes and systems for recovering old ammunition and, with around 6,500 employees, recently generated sales of around 1.8 billion euros. The smaller competitor Naval Vessels Lürssen (NVL) of the Bremen Lürssen Group has a turnover of around 900 million euros with around 1,800 employees. The third German naval shipyard is the Kiel German Naval Yards, which belongs to a European group of companies.
A German “naval ship champion”?
What could the consolidation of the industry, which has been discussed for years, look like? In an interview with the “Frankfurter Allgemeine Zeitung” in August, the co-head of the Lürssen Group Peter Lürßen outlined a merger of the two major competitors and the eventual contribution of German Naval Yards over the next five years.
Industry representatives also consider an IPO of TKMS before or after the consolidation of NVL to be strategically sensible. Before that, however, the Thyssenkrupp subsidiary would have to be made marketable. The necessary expertise is apparently sought from a financial investor who could support the urgently needed restructuring. According to “Handelsblatt”, the US private equity fund Carlyle is considered the most likely buyer of a majority stake, after there had already been discussions with other industry giants such as KKR, Advent and Triton.
With an IPO, the financial investor could then pass on his share again – probably with a decent profit. This would make TKMS the second largest German defense company on the capital market behind Rheinmetall.
Consolidation could go further
In the current geopolitical environment, the federal government is likely to like the strategic vision of a German “naval ship champion”. In the future, however, a European solution is already being discussed, which could follow the consolidation of national associations.
There is also a strategic logic behind this. While the USA, for example, bases its defense on a handful of larger weapon systems, the European arms market is comparatively fragmented, and national armies rely on a whole range of different platforms and systems.
In the naval sector, the first steps towards consolidation could be imminent. In any case, the opportunity is there.