German buyout market: stirring back to life?

The post-crisis years have seen the German buyout landscape routinely painted as a smaller, quieter market failing to match the levels of activity witnessed elsewhere in western Europe. But this could change this year – while the number and aggregate value of deals recorded by unquote" in the country remain lower than those seen in the UK and France, dealflow nevertheless rose by more than a quarter in the first six months of 2015 compared to the second half of last year.

In fact, the number of buyouts taking place in Germany in H1 2015 is the highest recorded since H2 2012. Meanwhile, the overall value of these deals more than doubled compared with H2 2014 to reach a cool €8.7bn, the highest level seen in two years.

Equistone is among those GPs that have kept very busy in the first part of the year. The firm inked no less than four new deals in Germany between January and July, including the buyouts of fashion group Tristyle Mode and automotive components manufacturer Rhodius.

Equistone managing director Peter Hammermann believes this streak should continue, and is adamant that the German market is not as sedate as is often claimed: "We are very busy and we are seeing a good number of opportunities; this year has so far been positive and we anticipate it to be the same for the coming months. Looking at our work in progress it should be a very busy period."

According to Hammermann, there is indeed little that suggests the coming weeks should be tougher for German mid-market GPs, with competition in particular not being as much of an issue as it can be in more crowded markets such as the UK. "On the private equity side, it doesn't look as if new entrants in the market are threatening the more established houses, and the larger funds still haven't found the grounds to be strong competitors in the mid-market," he adds. "Industrial buyers are indeed present and active, and they might have beaten private equity on several deals. But I don't see something similar on the family offices side, which are less of a challenge at the moment."

Keeping pricing in check
That said, looking at the rising average value of German buyouts inked in the first half of the year could suggest that the market is heating up nonetheless. Hammermann notes that pricing is indeed high, but points out that this is the case across Europe and perhaps more of an issue in the UK and France. "But even in Germany, we are in a period when people on the buy side sometimes believe they can achieve things that are slightly over the top pricing-wise. That said, there are still opportunities priced realistically; and over the medium term, the trend towards higher prices tends be corrected by the market so I don't usually see it as a long-term threat," he says.

Of course, a frothy market has a flip side when it comes to exits. Equistone has also been busy taking care of its existing portfolio in the first half of the year, notably taking advantage of appetite coming from strategic buyers: the GP sold In Time Express Logistik to South African business Super Group for €153m and divested its majority stake in pharmaceuticals business Uetikon to Ardian portfolio company Novacap. On the secondary buyout side, the firm sold wheelchair and mobility products company Sunrise Medical to Nordic Capital for €450m.

With deaflow seemingly rich in opportunities and economic growth projected to strengthen, Hammermann turns to longer-term factors when asked about potential challenges to this German revival: "For all of us, the biggest challenge is not Greece but certainly the levels of debt that are being accumulated in all European economies, and how politicians are going to deal with this, as it will eventually have an impact on the economic environment across the continent," he says. "A rise in interest rates is also something that we are monitoring, although I assume it should take some time before interest changes take place and have an impact on our market."

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• Investments
• Buyouts
• DACH
• Germany
• Equistone Partners Europe
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