DACH GPs hunt for value following fundraising bonanza

Last year was a turbulent one for private equity across Europe. Buyout fund managers faced diverse challenges on both the macroeconomic and political levels. Nonetheless, fundraising activity remained relatively strong throughout the year. This was also the case in the DACH region, where fund managers look back at 2016 as a positive vintage.

"Interest from LPs for private equity investments is still high across the DACH region," says Jan Drewitz, partner at Frankfurt-based mid-cap private equity house HQ Equita. "With historically low interest rates, there is a lot of money in the market for direct investments capable of generating attractive returns."

Looking at unquote" data, DACH-based private equity funds raised commitments of €9.5bn during 2016. Fund managers enjoyed 15 final closes, raising an aggregate €6.8bn of committed capital, and seven first closings held for a total of €2.7bn.

It is a matter of finding the right investment by leveraging the fund’s network and expertise and to carry it out for a reasonable valuation. There is a trend of increasing valuations, which I do not expect to change" – Jan Drewitz, HQ Equita

Meanwhile, unquote" data recorded three fund closes for funds-of-funds across the region in 2014 for a total capital raised of €595m, while no fund closes took place during the following year. In 2016, unquote" reported four funds-of-funds' final closes totalling €1.4bn in commitments, including LGT Capital Partners’ €500m final close for its Crown Europe Middle Market III, and Golding Capital Partners, which hit the €413m hard-cap for its Golding Private Debt VIII, both in February last year. More recently, Adveq closed its Adveq Europe VI vehicle in December 2016 on €462m.

According to unquote" data, DACH-focused GPs have benefited from this surge in private-equity-allocated capital. In fact, in January 2016, Adveq closed its Adveq Specialized Investments vehicle on €323m and Partners Group held a €2.5bn final close for its secondaries-dedicated Partners Group Secondary 2015 in March 2016. More recently, Deutsche Beteiligungs AG (DBAG) closed its seventh buyout vehicle, DBAG Fund VII, on its €1bn hard-cap in July 2016, while DB Private Equity hit the €260m hard-cap for its German Access Fund in October 2016.

According to Drewitz, "GPs focused on the DACH region need to generate some pivotal exits or it will be more difficult for fund managers to reallocate the bulk of capital they are raising." This said, at the time of publication, HQ Equita was understood to be in the market raising commitments for its new vehicle.

Positive outlook
Drewitz indicates he is confident about the year ahead. "It is a matter of finding the right investment by leveraging the fund’s network and expertise and to carry it out for a reasonable valuation. There is a trend of increasing valuations, which I do not expect to change. The economy is stable and the expectations for 2017 are relatively good."

This vision appears to be shared by other GPs, such as German mid-cap buyout manager Pinova Capital, which held a final close on the €180m hard-cap for its second vintage, Pinova Capital Fund 2, in January 2017.

Joern Pelzer, partner at Pinova, says: "In the lower end of the mid-cap market we never had excesses and the market was always quite accessible. In 2016, when we were raising funds for our second vehicle, it was much easier compared to the post-crisis period, when we raised our first fund. We were now able to internationalise our LP base as no one talks about capital efficiency anymore." In the aftermath of the 2007-2009 financial meltdown, LPs reportedly focused on so-called capital efficiency, which saw investors preferring to allocate capital to the higher end of the buyout market.

"Having said that, it is still tougher for German funds to raise capital compared to other markets, such as the UK, given that the German market is not yet as established," Pelzer says.

Pinova will now focus on deployment of its second fund and expects to go back to the market in 2019 with its third vintage, unquote" understands.

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