Permira's GFKL deal stands out in quiet Q2 for Germany

Greg Gille
26 May 2015

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Permira's purchase of GFKL marks the largest German buyout of Q2 so far, while also revealing the subdued level of deal activity in the region in recent months. Greg Gille reports

Permira inked its first buyout in the German market for nearly a year in mid-May by buying a majority stake in financial services firm GFKL from Advent International, in a deal valuing the company at €600m. This is the 11th investment by Permira's fifth fund, which is now deployed at nearly 50%.

The SBO, at present, stands as the largest buyout to take place in Germany in Q2. Bar the €500m VDM Group buyout in April, dealflow has so far failed to significantly pick up at the larger end of the market this quarter. But even looking across the market as a whole, unless activity picks up significantly throughout June, the slump in buyout dealflow is likely to be noticeable after two encouraging previous quarters.

So far, unquote" data has recorded a total of nine buyouts in the country in Q2 2015, worth an estimated aggregate of around €1.7bn. While a couple of large transactions could see Q1's value total of €3.07bn easily matched before the quarter ends, exceeding or even getting close to the 19 transactions witnessed between January-March should prove a much stiffer challenge.

What is more, a trough in Q2 would mean that the upwards dynamic initiated after an eerily quiet summer last year would come to a close. The third quarter of 2014 was indeed sedate with only 11 buyouts of German businesses, around half of the level of dealflow seen in the previous quarter – another figure that highlights how quiet the market has been in recent weeks. But activity heated up again in the final quarter of 2014, with 17 buyouts worth an aggregate €2.2bn recorded by unquote" data.

The first three months of this year saw local players and international heavy-hitters capitalise on this positive trend. Given how quiet first quarters usually are when it comes to the German buyout market – 11 deals in 2013, only eight last year – the 19 transactions in Q1 2015 meant Germany was the second-hottest spot in European private equity activity behind the UK.

In good company
While the forecast dip in buyout figures for Q2 could re-ignite the enduring debate surrounding the scarcity of dealflow in Germany's mid-market, it is worth bearing in mind what private equity players have been up to in other European markets in recent weeks – which is, not very much.

Take the UK, for example. After a red-hot Q4 2014, which saw 51 buyouts worth in excess of €9.8bn, activity slowed down in Q1 with 36 deals. The country has been home to 20 buyouts so far this quarter, which again would suggest the final figure could also struggle to improve on the first three months of the year. It is, however, worth noting that UK activity was clearly impacted by the run-up to the general election, and that buyouts have been signed at a significantly steadier rate since mid-May.

In France, meanwhile, buyout dealflow tallies at 10 transactions so far this quarter, again making a marked improvement on Q1's already low figure of 16 deals rather unlikely. Things are even bleaker so far in the Nordic region with just six transactions recorded by unquote" data, compared with 18 in the first quarter of the year. Clearly, GPs are becoming more selective – or the number of investment opportunities is drying up altogether – across Europe and not just in Germany.

The country remains a reasonably deep market, and looking at where GPs have unearthed buyout opportunities so far in the second quarter across Europe also highlights why Germany remains firmly on the map of investors. Around two-thirds of the German buyouts recorded between April and mid-May have been primary investments, split fairly evenly between corporate spin-offs and more traditional deals sourced from private vendors. Just a third of dealflow was sourced from other GPs – including the aforementioned GFKL deal by Permira. By contrast, half of the UK buyouts announced so far in Q2 have been secondary transactions. In France, the proportion of SBOs in Q2 jumps to an alarming – if not unusual for the country – 70% of all buyout dealflow.