German PE activity still lacklustre, says Akina’s Böhler

Harriet Bailey: How much confidence is there in the German market at present?

Christian Böhler: In the broader European context, international investors are deploying money into Europe, and Germany is still one of the first choices for investment. Macro-wise, the German-speaking region is very solid; there's a good forecast, unemployment rates are low and you have a lot of market-leading companies and technologies in the country. It's also still seeing positive growth compared to peripheral Europe.

But looking at private equity specifically, the picture is less positive for Germany. It is still lacking in terms of private equity penetration and deal-making is behind the most mature markets, which are the UK, France, Scandinavia and Benelux.

HB: Has the German buyout market fully recovered from the financial crisis?

CB: Deal activity has been remarkably flat in German-speaking Europe since the crisis. For example, we currently have about 100-120 private equity deals per year in Germany; before the financial crisis that was more than 200. Ten years ago people thought Germany was going to pick up but it never has. And if I look at German players I see the usual suspects – the number of players has been at a relatively stable 80-100 in the last 5-10 years.

HB: What is the outlook for a GP wishing to raise funds in the current environment?

CB: About 30% of GPs raise funds relatively easily in a short space of time; the top ones are even oversubscribed. The middle segment, which comprises 30-40% of GPs, are able to raise money but it takes a long time – more than a year in most cases and they typically don't reach their target size, maybe raising 60-90%. It's not an easy fundraise. The last third struggle heavily, fail completely or take a huge amount of time, say two years.

HB: How have the German fund managers that you have invested in fared?

CB: We have been investors in the DACH region for around 15 years and have invested with a sizable number of fund managers, in various strategies and deal size brackets. On average, the DACH region has been a solid midfielder in terms of performance compared to other European markets. It is better than the performance we have seen in peripheral Europe – the south and CEE – but is probably lower than the best-performing markets like Scandinavia and Benelux.

The difference between fund managers also seems to be higher than in other large markets like France and the UK; given the less mature experience curve some groups had to learn lessons first, such as entering the leverage trap pre-financial crisis or fine-tuning their financial engineering skills in general. In addition, the German economy is more cyclical given its strong export and manufacturing base; this is consequently mirrored in underlying fund returns.

HB: Have any of the German managers you are invested in requested fund extensions given the lack of dealflow in the country?

CB: We have seen that quite regularly in the last four to five years. This is a consequence not only of a lack of quality dealflow but also of funds being raised that are too large. We therefore place a strong focus on fund size during due diligence and, in case of doubt regarding deployment capacity and ability, we have no qualms about declining what looks to be an attractive investment opportunity.

 

Enjoyed reading this article? Meet more than 80 GPs and LPs at the annual unquote" DACH Private Equity Forum taking place on 7 October in Munich. For more information on the agenda and speakers confirmed, visit the website here.

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