DBAG turns focus to proprietary dealflow as auctions slowdown

The emphasis on direct negotiations comes as DBAG has seen fewer attractive targets recently alongside a significant drop in the market pipeline than the same time last year, he said.

"We're still looking for attractive businesses as there's always a place for any attractive businesses even in this economic condition. But the question is what is available on the market?" he said.

The move is becoming increasingly prevalent in the wider market with buyers and vendors opting for more bilateral negotiations given the difficult financing market and reputational risk that comes with potential failed processes, as reported by Unquote yesterday.

Of the few businesses now on sale, some are finding that striking a deal is becoming increasingly difficult even if they may be well-run businesses because of the expectation that the macroeconomic environment will worsen, he noted. And while there remains some extremely high-quality businesses that could be acquired via a competitive auction, it can be difficult to get the financing needed to fund the deal, he added.

Recent deals by DBAG include vhf camfacture, a family-owned company computer-controlled milling machines for dentistry and industrial application in which it invested for a 20% stake in August, and the acquisition of Germany-based IT service and data centre business Akquinet via a "limited process" in March, as reported.

DBAG is working on different proprietary situations and in direct discussions with families and business owners, he said. "It's highly challenging work that needs a lot of time invested," he said. "We have built a large network and track record building up this pipeline over the past years backed by positive references, so this makes the process a little bit easier."

Despite the renewed focus on self-originated dealflow, that will not come at the expense of its market search for businesses where it is still active in, he emphasized.

DBAG is investing in its Fund VIII vehicle, which raised EUR 1.1bn in 2020. It has around 50% of dry powder remaining to deploy between now and the end of its investment period in December 2026, although with a potential to finalize earlier, according to a spokesperson for the firm.

The challenging financing landscape could also impact holding periods for some owners, he said.

"Right now, many businesses are not coming to the market because sellers' expectations are significantly higher than what buyers are currently able to pay for a business, especially given the limited leverage they can take on," he said, noting that some vendors are finding it difficult to sell given the investment returns needed to justify their original investment case.

"We see some price adjustments among the few deals out on the market, and I expect to more deals coming through with price levels adjusted," he said.

But quality assets will still have a market, he said, citing DBAG's exit of Cloudflight, a digital transformation services provider in Europe, which was sold to Partners Group in a deal valued at just under EUR 400m and in an exit that generated money multiples of over 4x, as reported. DBAG continues to hold a 10%-15% in the company. Managing Director Lucas Herbert noted that DBAG received 10 offers for the business during the process.

Mergermarket reported at the time that the sponsor expected offers valuing the business at around 20x its EUR 25m EBITDA. FSN Capital, Apax Partners, BC Partners as well as Partners Group showed interest in the asset.

Last week, DBAG announced the sale of Pmflex, an Italian manufacturer of pre-wired electrical conduits, to trade buyer Hager Group in a proprietary deal, as reported.

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