Analysis

Trade buyer caution forcing GPs down SBO route

Source: DACH unquote | 26 Nov 2012
Ulrike Hinrichs

Lengthy negotiation battles between GPs and corporates are hampering the German deal market. Many GPs are turning to secondary buyouts to speed up the process. Carmen Reichman reports

Activity in Germany has been slow throughout the year but as the end of summer approached, deals and exits began to surface. As everywhere in Europe, Germany battled against worsening conditions surrounding the eurozone crisis, national political and fiscal issues, and fluctuating markets. Investors reacted by showing deterrence to both investing and divesting.

Deals finally started to flow in the summer, albeit not at the rate many had hoped, already signalling that year-end figures could be well below last year's. According to unquote" data, exits alone were around €5bn below last year's figures, with numbers of exits down by two thirds, from 90 in 2011 to 33 so far in 2012.

BVK managing director Ulrike Hinrichs recalls, "There was certainly pressure mounting to invest, especially as some bigger firms were in the process of fundraising and therefore needed to show a degree of success with exits and investments."

Hinrichs suggests that lengthy negotiation processes might have led to deals being called off or delayed until the summer, explaining the late mini boom: "We still see uncertainty in fiscal and economic developments and in capital markets as well. It is very hard to predict how well or badly businesses will do. This can lead to a standstill between buyers and sellers over how much businesses are worth."

The unquote" proprietary database shows that this year also saw a significant increase in secondary buyout activity, while trade sales have fallen off somewhat. This may not be due to a lack of firing power from trade players, however, as German businesses are typically performing quite well and are said to be cash rich.

Hinrichs explains: "I think the reason for these SBOs is probably found in the speedier processes and the fewer delays with authorities. There are a few advantages to selling to other private equity firms that may well warrant a lowering of the asking price, even when a trade player would potentially have offered to pay more."

Triton has pushed through the SBO of its German logistics business Dematic, earlier this month. The firm is thought to have been in lengthy negotiations with Asian trade buyers over the summer, which are rumoured to have offered to pay more than the estimated €700-800m the firm eventually received from AEA Investors and Teachers' Private Capital. However, Triton is currently fundraising for its €2.5bn fourth fund and the firm has slated a first close early in the new year, which could explain its decision to end negotiations for the sake of a speedy exit.

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