Germany: Lagging behind?

John Bakie
13 January 2011

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While France and the UK saw a dramatic return of mega-buyouts in the summer of 2010, Europeтs other powerhouse economy, Germany, was host to just a single deal valued at over тЌ1bn. John Bakie investigates

Private equity activity picked up considerably in both the UK and France during 2010, and while far from the, perhaps excessive, levels of 2006 and 2007, was heralded by many as a return of more normal conditions for the industry. However, Germany has not quite lived up to expectations, lagging behind despite being Europe's largest economy.

Both France and the UK saw their market share by value climb during 2010. For example, the UK accounted for 29% of all buyouts in 2009, climbing to an impressive 38% last year. But Germany's share of the buyout market fell from almost 20% in 2009 to just 7.6% in 2010.

Germany was home to just a single mega-buyout in 2010, coming at the tail end of the year with Apax's secondary buyout of fashion retailer Takko. The €1.3bn deal took place in December, and without Germany would not have a seen a single mega-buyout all year. To put this into context, Germany was host to six €1bn+ deals in 2006 and nine in 2007. Moving down the value chain, Germany still only saw 6 deals valued at over €250m, including the Takko buyout.

However, despite seeing a much slower recovery in private equity activity than its two major rivals, Germany has a number of positives that bode well for the coming year. Firstly, its economy fared much better than many others in Europe through the financial crisis and 2010, with many predicting this steady recovery will continue next year.

It must also be remembered that Germany has always put considerable emphasis on the mid-market, or Mittlestand. Mid-cap companies have, for many years, provided much of the dealflow seen in Germany, and Wilken von Hodenberg of Deutsche Beteiligungs AG believes many in this segment will be looking to raise capital this year. "We are looking forward to another year of strong economic growth in Germany. To finance this growth, many companies will need capital, especially in the Mittelstand, the back-bone of the German economy. Therefore, DBAG continues to anticipate a lively demand," he says.

So, while 2010 did not see a major rebound in Germany private equity investment, it seems players in this market remain reserved, and will deploy capital as and when it seems sensible to do so.