Large-cap segment boosts DACH deal totals

Overall deal value in the DACH region reached €17.5bn in 2013, up from €14.1bn in 2012, according to unquote" data. Volume was slightly down though, revealing an emerging trend: the buyout market is slowly edging towards the larger end of the scale. Q2 2013 rammed this point home, with a whopping €9.5bn worth of deals, 75% of which came from three transactions: CVC bought back Ista, the German metering business it had sold to Charterhouse in 2007, in a €3.1bn deal that included a €1bn equity slice; Cinven acquired Ceramtec for €1.5bn; and EQT and GIC announced the long-awaited sale of Springer Science to BC Partners for €3.3bn.

Hopes are high that the market goes from strength to strength. "The year 2014 will see Germany, Austria and Switzerland be one of the most important regions for private equity once again. The ongoing favourable outlook for the German economy should substantiate this outlook. The past three years have shown that the DACH region is an anchor of economic stability for the Eurozone and for the private equity and venture capital markets in particular," says Matthias Kues, chairman of the German industry association BVK. "The more than €40bn invested over the past five years has seen the DACH market rank third in Europe. I am absolutely convinced that it will gain even more importance as a region to invest in," he adds.

Bullish GPs

Pan-European GPs are bullish too. "The DACH region has been great for us in the last few years," explains Christoph Rubeli, co-CEO and head of private equity directs at Partners Group. The GP's deals in the region last year include the sale of Austrian refrigerator manufacturer AHT Cooling Systems to Bridgepoint for 4x money. On the buyout side, the joint acquisition of Swiss vacuum valves firm VAT Holding with Capvis is yet another example of the growing number of sizeable deals. "The deal was about one billion Swiss francs; we're doing larger, more noticeable transactions in this mid-market space," says Rubeli.

And LPs are convinced of its merits too. "From a pure numbers point of view, we have been rather over-allocating to the region. It probably counts for approximately 20% of our investments within Europe, yet the market volume counts for around 15% of deals," explains Christian Böhler, principal responsible for fund investments in the DACH region at Akina. "So we over-rate it. From a pure macro point of view, the reason is obvious: it's one of the few regions where you have had a tailwind in the recent past, macro-wise. That's become increasingly important during and after the financial crisis; without it, you can be the best fund manager, but you won't see good returns."

But despite the growing tendency towards larger deals in the market, Böhler is convinced opportunities lie elsewhere in 2014: "I think there is a strong case in Germany for taking minority positions in companies and partially buying out the owner, typically complemented with injecting growth money into the firm. A lot of entrepreneurs are in their early 50s, and need money for growth but don't want to sell the company completely. There's a generation of entrepreneurs that primarily want a competent business partner. But if you look at players in the DACH region, the vast majority continues to strive for a controlling stake, therefore excluding attractive deal opportunities early on." Though the region has traditionally been associated with buyouts, DACH-based GPs may do well to break out of the box to continue to ensure the best returns.

Lending a hand

The lending market is also expected to remain strong in 2014. Last year, Marlborough Partners chose Germany as the destination of its first non-UK office. The market does seem to still be relying on traditional lenders, though; in August 2013, Star Capital sold care provider Alloheim to Carlyle for €180m, supported by a debt financing package provided by five banks. The relatively high number of banks involved in the lower mid-market transaction could point to a market still in evolution. But the liquidity hasn't gone unnoticed. Says Rubeli: "The debt markets are quite liquid, which allows us to have very beneficial terms vis-à-vis covenant lite, for example, which helps on the equity side."

But is the region working to the best of its potential? Not according to Böhler: "Ten years ago, considering the size of the economy, people said that in a decade's time the number one player in European private equity will be Germany. That's not the case and I don't see that changing. Private equity as an asset class is Anglo-Saxon concept and if you talk to the typical Mittelstand owner, still a large portion aren't really aware of private equity.The region isn't yet where it could, and should, be. Looking at the historic performance of the DACH private equity markets in the last decade, and comparing it to other European markets, I would say Germany is a solid mid-fielder, not more, not less. As performance between different fund managers varies quite substantially and more significantly than in other markets, it seems that the right fund selection is absolutely key to achieve outperformance in the region." Despite some undeniable wins, perhaps GPs in the region need to re-assess tactics to emerge as a striker.

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• Topics
• DACH
• Buyouts
• Exits
• CVC Capital Partners
• Charterhouse Capital Partners
• Cinven
• EQT
• BC Partners
• Germany
• Austria
• Switzerland
• BVK
• Partners Group
• Bridgepoint
• Capvis AG
• Akina
• Marlborough Partners
• STAR Capital Partners
• Carlyle Group
• Top story