DACH: Growth capital value up as traditional buyouts suffer

According to unquote" data, Q1 2013 recorded 71 deals; fast forward a year and by the end of Q1 2014, the region has witnessed just 38 transactions. 

Though decreased dealflow has reduced the sample size, an emerging trend is visible: growth capital deals are growing in value. Increasing equity tickets are occurring at the expense of more traditional buyouts - a former stalwart of the DACH region. This time last year, growth capital deals sat comfortably in the €5-10m bracket, but not so this year; four businesses raised more than €40m this quarter. Notable deals in the bracket saw KKR buy a 9.7% stake in football club Hertha BSC for €61.2m in February, while Swiss biotech Novimmune received almost €50m in a Rosetta Capital-led funding round the same month. Are GPs moving away from the buyout model that has so long been associated with the DACH region?

"There is a lot of scope for growth financing of mature firms if you look for it. Many owners don't want to share the full company but need a partner and some money for growth. There are not too many players [in this area] because your fund is obviously not in control but, from a pure performance and investment point of view, it is a very attractive case," says Christian Böhler of Akina Partners, which backed Novimmune in the €50m round in February.

Fair price
Growth financing of mature companies may, then, be the way for companies to combat the stagnating buyout market where "the seller's price expectation, in general, is high," says Böhler. Not only is pricing fairer, but competition is lower: "You still have a lot of players in Germany that, purely by definition and by default, only do control positions and buyouts, and early on deselect any minority cases, despite the fact that it might be a mature and profitable company."

But the buyout sector has not given up just yet, despite completed deals being down to a third of their Q1 2013 number. Just five buyouts took place in German-speaking countries between January and March this year compared to 15 during the same period last year, according to unquote" data. Average buyout value has also shrunk, halving to approximately €40m - from growth capital to buyout, DACH dealflow looks to be compressing into the small-cap segment.

This is quite a contrast to 2013, which saw a spate of mega-deals that boosted deal value totals by almost €8bn. BC Partners paid €3.3bn for Springer Science, while CVC's acquisition of German metering business Ista contributed €3.1bn to the total. Cinven's carve-out of Ceramtec from Rockwood Holdings for €1.5bn completed the trio.

This shrinkage is potentially advantageous for GPs, as the lower end of the small-cap segment is an area that, according to Jörg Sperling of Wheb Partners, is being neglected by traditional private equity houses: "There is almost nobody addressing these deals of €5-12m, but there are a lot of smaller companies and this is exactly the amount they need. I would guess the vast majority of the capital for companies in this segment actually comes from family offices and they are my main competition when looking for deals."

Despite the shrinking deal size, mid-cap players need not despair as the development could result in a revived source of dealflow. As small-cap GPs grow their assets and look towards an exit, larger funds can step into the breach. Wheb is one such small-cap player to record exits this year, selling two assets: "This was driven by the larger funds looking for investment opportunities. Once we've brought these companies to a certain size and stage, they become interesting targets, so it is not a surprise that we sold to buyout firms," says Sperling.

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• Topics
• DACH
• Buyouts
• Expansion
• Early-stage
• KKR
• Akina
• CVC Capital Partners
• BC Partners
• Cinven
• WHEB Partners
• Germany
• Austria
• Switzerland
• Top story