GP Profile: Deutsche Private Equity

Click here to view a complete profile of Deutsche Private Equity, including details of funds, LPs and investments, on Unquote Data.

Deutsche Private Equity (DPE) was founded by Marc Thiery and Volker Hichert in 2007. Today, 11 years and 20 platform investments later, the GP is in the process of deploying its third fund.

DPE Deutschland III held a final close on €575m in January 2017 and is currently 44% invested or reserved across five platform investments, Air Alliance, AWK Group, Erdo Group, Euro-Druckservice and VTU Engineering. The third fund represented a significant increase in volume compared to the second, DPE Deutschland II, which held a final close on €350m in April 2013. Thiery explains: "With the new fund the plan was to do more deals, although we have also done a few bigger ones. We also used to syndicate more and now we can take buy-and-builds a bit further and faster."

So far, DPE II has only made two realisations, partially divesting Elatec to US private equity firm Summit Partners earlier this year and managing to generate a healthy return on the sale of Interschalt (1.5x, 90% IRR), despite being dragged out of the deal earlier than planned.

Parcom Deutsche Private Equity, the GP's first fund that still bears the name of its former Dutch partner and subsidiary of the ING Group, is almost fully realised. Recent exits from SLM Group and Elevion have generated returns of 9.7x and 13.5x respectively for the €250m vehicle.

Good advice
Thiery attributes the firm's success to the decision in 2007 to adopt a different approach. "We decided to do three things," he says. "The first was focus on growth companies, typically with at least 10% revenue growth, but in established companies so it was not VC. The second was to be sector-focused, which would allow us to do better origination than the cold-calling technique some people were using. And the third was to use that sector expertise to do more and better portfolio work."

The third element of the approach was probably the most controversial in Germany at the time. Due to a quirk of the widely used GmbH & Co KG structure, there is a perceived risk that if the regulator decides management is too active in its portfolio companies, the fund designation can be stripped and there are significant tax implications for the GP.

However, Thiery believes this is somewhat overblown. "You have to act in line with the guidelines for private equity investments published by the German tax authorities, which require PE firms to act in a supervisory capacity rather than to make management decisions on the level of the portfolio company," he says. "However, I think a lot of the more established and sophisticated PE firms use this as an excuse. They are doing other things on tax structuring that are very adventurous and then tell investors they can't do any portfolio work because of German tax requirements."

Acting in a supervisory capacity, in the way that DPE does, takes up a lot of time and resources. Consequently, as the firm has expanded, this has led to the creation of separate teams. "We now divide the team into a portfolio and an investment team because deal work is too disruptive to portfolio management," says Thiery. "We installed that division around the time we closed DPE II."

Under supervision
Thiery gives an example of the work DPE undertook on technical building services company Elevion: "The most valuable contribution to Elevion was giving management advice in scaling up the organisation in terms of people, processes and structures. We also helped to increase transparency, risk management and compliance. Finally, we supported all M&A-related activities from identification and qualification of targets to due diligence and structuring of add-ons."

DPE invested in the company in 2011 and made 13.4x and a 61% IRR on a trade sale to Czech energy company CEZ Group in August 2017. During its holding period, DPE supported 30 strategic acquisitions. It also devised and implemented professional structures, installing a dedicated IT department, a legal department, a central M&A department and group compliance and HR functions. Through the HR function, Elevion Academy was created to further educate and develop staff. All of this resulted in revenues growing from €60m in 2011 to €330m at the time of exit, while the number of employees grew from 500 to 2,000.

Of course, not all of DPE's investments have generated such impressive returns, but even a deal that went against them in 2016 yielded an acceptable multiple. DPE II originally invested in Interschalt in July 2015. The company develops software that carries out work that would have historically taken a stowage planner eight hours, in 30 seconds. It considers more than 60,000 variables to create detailed storage plans for cargo ships. DPE had to accept a drag-along from Finnish strategic bidder Cargotec to get the deal done. Then, after the GP supported the acquisition of Müller+Blanck and advised on the roll-out of a new software package, the drag-along was activated and Cargotec fully acquired the business in February 2016. DPE generated 1.5x on the deal but due to the short holding period this translated to an IRR of 90%.

Cultural shift
Such instances aside, business owners across the DACH region are increasingly accepting of PE owners. Unquote's Annual Buyout Review has recorded an increase in buyouts from private and family vendors for the last five years. Thiery has also observed this trend and has a theory about the cause: "Owners selling to a corporate now realise that there is less security that the business will continue to be run in the same way and in the same place than it was 50 years ago. PE looks relatively more attractive to them and their management teams because of the additional wealth creation that is possible. Also in most cases they get more support and more independence, reporting only to the deal team."

However, when it comes to a succession plan for his own business, Thiery wants to keep it closer to home. He laughs off the prospect of a minority stake sale or an IPO saying: "We have a long term succession plan within the company. With Frank Müller and Guido Prehn we have included two partners in the equity and management of the firm and more will follow in the future."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• GPs
• DACH
• Top story
• In Profile
• Germany
• Deutsche Private Equity