DACH investors fear digital expertise shortage

In a survey conducted by Unquote sister brand Acuris Studios for PwC, 97% of private equity principals surveyed said they had made investments in digital transformation in the past year. Successful digitalisation promises greater productivity for portfolio companies, shorter holding periods and ultimately stronger returns.

In the DACH region, however, GPs face several obstacles.
McKinsey estimates that in the next five years, Germany will need around 700,000 more people with technological skills than are available today. Rainer Berak, managing director for venture capital firm Project A, says: "Digital talent is something that every company out there wants; they have the skills needed for a company to survive."

Unemployment in Germany reached 5% in May 2019, the second lowest rate in the EU. In this competitive environment, private equity firms and their portfolio companies are struggling to attract and retain the digital workforce that is increasingly important to their equity stories.

Jörg Rockenhäuser, head of DACH for Permira, says the region's education systems do not focus enough on digital skills. "Most people are not trained in school, but on the job," he says. "Generally speaking, there is not enough focus in universities in the DACH region on technology, especially in Germany."

The lack of formal technology education has pushed companies to hire untrained people to fill the gap. Berak says that by using this method, home-grown talent fills 90% of senior and leadership positions at Project A: "Internal training provides great career opportunities for new hires and it solves the problem that the skills needed in our industry are hardly taught at university."

Permira's Rockenhäuser had a similar experience with portfolio company Schustermann & Borenstein: "We were looking for an experienced CRM leader to build up the team and, while we were searching, the company hired a few digital natives to fill the roles, and to organically build the CRM team. This has now developed into a great home-grown team."

Digital roadblocks
Germany must also grapple with its neglected digital infrastructure, which threatens innovation in industrial technology, such as autonomous driving and big data management. The country's 5G auction closed in June 2019, slightly behind most other developed nations. Deutsche Telekom, Vodafone, Telefonica Germany and 1&1 Drillisch have paid €6.55bn for the right to use the network, a higher sum than in other countries. This may inhibit the companies' ability to maintain the infrastructure, which has led to some concern about the future of industrial companies and the automotive sector in Germany.

Sven Oleownik, head of Gimv Germany, thinks lagging infrastructure and innovation in Germany and Europe is a factor in the shortage of technology professionals: "In Europe we are less able to attract companies and employees in technology than countries such as Indonesia, India, China and Vietnam. Europe needs to pay attention because we are losing market share and capabilities."

Firms use various methods to tackle the shortage. Project A's Berak thinks culture is vital to attracting digital talent: "We have a startup culture here, but we also offer the stability of a more established company."

Private equity firms also use buy-and-build strategies to sidestep the shortage. A study by Noerr and Unquote sister publication Mergermarket found that 71% of German companies surveyed said acquiring digital firms plays a central role in their strategies. "When you acquire a company you get access to the relevant technology professionals, who tend to work for younger, innovative, agile companies," says Oleownik.

Retention is also a challenge. When speaking about Project A's in-house team of 100 technology professionals, Berak says: "Our operational team has to stay relevant. We never push the team on our clients, but at the same time, we do not want to have bench warmers being bored, because we lose them right away." In Berlin, where Project A is based, Berak says it is the norm for technology professionals to change companies annually.

Oleownik says that fair remuneration is key to retaining talent. "We might give stock options to allow employees to really get their skin in the game and invest their own money," he says.

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• Topics
• DACH
• Technology
• Investments
• GPs
• Germany
• PwC
• Project A Ventures
• Permira
• Gimv