DACH region turns a corner

Douglas, Schlecker, Neckermann and Pfleiderer are only a few of the German household names that ended up in the hands of administrators in the past few months. They followed former German giant the Arcandor group, the German division of Woolworths, Karmann, and once famous solar modules maker Q-Cells.

With banks consolidating their balance sheets and trade players holding back, private equity is often the only option available for these businesses. Also, with less aggressive investor competition the market could be equally attractive to GPs. But Stephan Happe, managing director of FTI Consulting explains that while a rise in insolvencies naturally creates more opportunities for investment, investors are only interested in companies with a competitive and sustainable business model. He says: "We believe that many future insolvency cases will be the results of serious strategic problems that will be difficult to solve. That is why we think the rising number of insolvency cases will revive the market for distressed investors but only disproportionately."

Christian Hollenberg, founding partner at Perusa, a firm that invests in turnarounds and has examined big insolvencies including Schlecker's, says: "We have looked at a number of the recent big cases but have concluded that they are not attractive to us as they are either badly positioned or have organisational issues that are too complex for us to repair. The highest-profile cases can be particularly disappointing for investors." He adds: "The most interesting deals are niche companies with high market shares in small markets as customers rely on these companies."

The recently introduced insolvency law, ESUG, was put into effect in March this year to make it easier to restructure businesses in Germany but its effectiveness has been met with some scepticism. "ESUG certainly sends out a psychological signal but I cannot see any real opportunities to do things that one could not do before," said Dr Sven-Holger Undritz, adviser at White & Case Insolvenz GbR - Hollenberg says his firm has already made use of the new law and is convinced of its potential: "From what we've seen so far we think it's a very interesting system. It offers a lot of new possibilities to restructure businesses while causing less collateral damage to the business."

Despite scepticism there has been some activity in recent months: it was announced in August that Schlecker's Austrian division had been bought by turnaround platform TAP09, a little known private equity investor platform based in Vienna and led by Rudolf Haberleitner; Douglas reportedly attracted PE investor interest from Advent International, BC Partners and Permira; and most recently Pfleiderer received interest from Luxembourg-based GP Atlantik to buy all its shares.

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• Topics
• DACH
• Turnaround/Special Situations
• Germany
• Switzerland
• Austria
• Perusa GmbH