Austrian buyout market with growing deal values

The Austrian market is one of the smallest buyout markets in Europe in terms of both volume and value. In terms of deal volumes in recent years, the market has ranged between five deals in 2000 and two deals in 2001. The annual value of the buyout market has shown a similar seesawing motion, with values between lows of about E86m in 1998 and highs of E624m in 1999, according to the European Buyout Review 2003 published by Initiative Europe. The value of the Austrian buyout market appears to be heavily influenced by one or two large deals every year. Generally though, such uneven growth and low development make any discussion of trends and projections for the Austrian buyout market difficult at best.

The value of the Austrian buyout market grew from E119.6m in 2001 to E140m in 2002. Although the value of the market is still well below levels in 1999, it is still the third highest annual market value seen in Austria to date. Admittedly though, the value of the market in 2002 is disproportionately dependent on one large deal. The market saw three deals completed in 2002 compared to two in 2001.

These were: the E127m buyout of Hochtemperatur Engineering GmbH by DBAG, the E9m purchase of Forstinger Handelsgesellschaft by a syndicate of investors led by Orlando Management, and the E4m buyout of EUnet by a syndicate of investors led by Global Equity Partners, which already has been successfully exited earlier in 2003. The Hochtemperatur buyout is one of the largest buyouts ever seen in Austria, exceeded in deal size only by the buyout of Andritz AG in 1999 for E460m, the purchase of Austria Mikro Systems for E290m in 2000 and the E163m KTM Sportmotorcycle transaction in 1999, providing positive signals of an improvement in conditions in the Austrian buyout market.

Furthermore, there has been at least one exit per year in Austria since 1999, with 2001 seeing the successful flotation of Andritz AG on the Vienna exchange. The company was originally bought out for E460.1m from Germany's Agiv AG by a syndicate of investors led by the Carlyle Group in 1999. Nevertheless, there were no recorded exits via this route in 2002. Trade sales may become an increasingly common exit route, given that international players may wish to acquire Austrian operations in order to take advantage of the market's proximity to Central and Eastern European markets, especially with plans for EU enlargement from 2004 onwards now under way.

Sources of Buyouts

Initiative Europe recorded no privatisations in 2002, with the first deal from this source taking place in Austria completed in 2001, the buyout of Strohal Rotationsdruck GmbH by Invest Equity at an estimated E100m. As the centre-right Austrian government continues its ongoing programme to privatise significant parts of Austria's large public sector, more deals are likely to originate from this source in the future.

However, there were two recorded buyouts from receivership in 2002. The largest was the E9m buyout of Forstinger Handelsgesellschaft by Orlando Management and REB Restrukturierungs- und Beteiligungsgesellschaft. Vienna-based Global Equity Partners backed the E4m management buy-in at bankrupt KPNQwest Austria GmbH and KPNQwest Assets GmbH to form EUnet. In 2001 ABN AMRO purchased Steco International Plastic Logistics Systems for E19.6m from receivership after the company's parent, Steiner Industries AG, collapsed.

Austria has relatively few very large corporations and foreign operations within the country. Nevertheless, 2002 saw the divestment of Hochtemperatur Engineering GmbH from local parent RHI AG which was undergoing a restructuring process in order to concentrate on its core business. The largest buyout seen in Austria to date originated from the divestment of Andritz AG from a foreign parent, Agiv AG, in 1999. There have been a limited number of deals from family/private sources. The last deal from this source was in 2000 with the E72.7m buyout of Polytec Group by CapVis.

Public-to-private deals in Austria have also risen in importance in recent years, with the market seeing its first in 1999 in the form of the E163m KTM Sportmotorcycle AG deal by BC Partners. This was followed by Schroder Ventures' (now Permira's) take-private of Austria Mikro Systems in a deal worth around E290m in 2000. In 2002 Quadriga Capital Management began the process of taking Austria Haustechnik private by buying a controlling stake in the company. However, while Quadriga has acquired enough shares, it has yet to force a squeeze out of the remaining shareholders. The limited size of the Austrian market has meant that there have been no secondary buyouts yet completed in the country.

Supply of Buyout Finance

In 2001, Invest Equity's E15m IED-Beteiligungen GmbH fund, a parallel investment vehicle to its Invest Equity Beteiligungs AG fund, was wholly financed by KfW in Germany: as a result the group had E74m funds under management (also reaching a first close on its early-stage fund in 2001). GO Equity is another domestic player to have acted on local buyouts in recent years, supplying equity on the E1.1m Planet Planungs- & Produktions deal in 1999.

In 2002 domestic equity players Global Equity Partners and Volksbank Investmentbank AG provided the equity on the E4m EUnet deal. Austrian groups which have recently been involved in raising funds to focus on this region include Raiffeisen Private Equity Management (which closed on E85m in 2001), East Fund Management and Horizonte Venture Management. In the funds-of-funds arena, 2002 saw Vienna-based Bank Gutmann reach a E20.5m second closing on its second global fund-of-funds, Global Private Equity II.

Non-Austrian groups have long represented the key source of equity capital in the country, which is unsurprising given the country's similarities and proximity to Germany, one of the Continent's largest buyout markets. German groups to act in the market in recent years have included Deutsche Beteiligungs AG and Landesbank Baden Württemberg, both of which acted on buyouts in 2002.

Neighbouring Switzerland has also provided equity players, including CapVis Equity Partners and Léman Capital, while pan-European players from the US and UK, including GE Capital, the Carlyle Group, BC Partners, Permira and Alchemy Partners have entered the market in recent years, often to complete some of the country's largest deals.

Another recent UK entrant is 3i, which entered the market in 2000 via the acquisition of a subsidiary of Bank Austria. 3i recently announced the launch of its fourth Eurofund with a target of E3bn, although the group has yet to complete any buyout deals in Austria.

The bulk of domestic debt finance on Austrian buyouts in recent years was supplied on the E460.1m Andritz AG deal in 1999, on which both Raiffeisen Zentralbank and Creditanstalt acted. In 2001, domestic debt provider Österreichische Volksbanken lent on the Strohal Rotationsdruck GmbH deal, a buyout estimated to be in the region of E100m. In 2002 Raiffeisen Landesbank Oberösterreich (RLB) and Österreichische Volksbank refinanced the original Polytec structured finance deal from 2000 and increased their credit facilities to provide add-on acquisition and working capital financing.

Non-Austrian banks active in the market in recent years have tended to be German, including Landesbank Baden Württemberg which provided the debt on the Hochtemperatur Engineering deal in 2002. Other German banks active in Austria include HypoVereinsbank, Deutsche Bank, Dresdner Bank and BHF Bank. UK-based Royal Bank of Scotland has also been active in Austria, lending on the E74.1m Chemson Group deal in 2000. Mezzanine providers include domestic supplier Invest Mezzanin, which provided the mezzanine finance on the Strohal Rotationsdruck GmbH deal in 2001.

This is an excerpt from the European Buyout Review 2003 produced by Initiative Europe in associatian with Brigdpoint. The chapter on Austria has been produced in association with CapVis Equity Partners. The review provides an annual overview of private equity buyout activity in Europe. All statistics are produced on the basis of validated data collected by Initiative Europe.

For further information please contact: Nicholas Gordon, senior research analyst. Email: nicholas.gordon@initiative-europe.com. Tel: +44 1737 784 204

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